Shares of RV-maker Winnebago Industries, Inc. (WGO -0.33%) rocketed higher today after announcing an acquisition of towable RV manufacturer Grand Design for $500 million in cash and newly issued shares. The market roared with approval for the deal, and the stock climbed through the morning, getting a boost from an analyst upgrade from Robert W. Baird. Shares were up as much as 29.8% during the session, and finished 23.7% higher.
The deal is the biggest acquisition in Winnebago's history and will give the well-known RV maker a greater stake in the fast-growing towables market. Winnebago's sales growth has been challenged recently as consumers have moved from Class A Recreational Vehicles, the most expensive class, choosing cheaper options, like towables, instead. Grand Design has put up a whopping compound annual growth rate of 80% since 2013, and Winnebago management said it expects the acquisition to be immediately accretive to the company's growth profile, profit margin, and earnings per share.
Grand Design brought in $428 million in revenue in the last 12 months, meaning Winnebago is paying $1.17 for each dollar of revenue. By comparison, Winnebago was trading at a P/S of 0.65, but considering Grand Design's growth potential, the price looks like a bargain.
The deal will increase Winnebago's percentage of revenue from towables to 37% from 10%. CEO Michael Happe said, "This combination provides Winnebago with greater overall scale and a more balanced portfolio across its motorized and towables segments."
Additionally, the company released preliminary fourth-quarter earnings that were better than estimates, as it sees revenue of $263.9 million, up 4.9% from a year ago, and EPS up 14%, to $0.49.
The company will deliver its full earnings report on October 13 and expects the Grand Design acquisition to close by the end of the current quarter.