Image Source: Winnebago.
What happened
Shares of RV-maker Winnebago Industries, Inc. (WGO -0.62%) 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.
So what
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.
Now what
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.
