Why Brunswick Corporation Shares Could Speed to $55

Does this analyst make a good case? Or is it just more noise from Wall Street?

Brian D. Pacampara, CFA
Brian D. Pacampara, CFA
Jun 25, 2014 at 1:40PM
Industrials

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Brunswick (NYSE:BC) gained 1.5% today after KeyBanc upgraded the recreational products company from hold to buy.

So what: Along with the upgrade, analyst Scott Hamann planted a price target of $55 on the stock, representing about 35% worth of upside to yesterday's close. So while momentum traders might be turned off by Brunswick's year-to-date sluggishness, Hamann's call could reflect a sense on Wall Street that its growth prospects are just too cheap to pass up.

Now what: According to KeyBanc, Brunswick's risk to reward trade-off is pretty attractive at this point. "As the Company undergoes a major refresh across its core SeaRay line, we have taken a deeper dive into the upside potential this product cycle creates, and we now believe the brand has the potential to double by 2017 to roughly $600 million, having peaked at over $1 billion in 2005, contributing to earnings power of over $4.30 per share," said Hamann. "Our analysis incorporates modest, sustained momentum in the overall boat market along with a rebound in worldwide SeaRay units to roughly 4,100 by 2017 (from 3,100 in 2013, 8% CAGR), with meaningful ASP (+6-7.5% annually) and unit growth coming from the lower-volume 31-40 foot Cruiser (350 SLX) and 41-62 foot Yacht segments (510 Fly), where the bulk of the recent innovations are focused." When you couple that upbeat outlook with Brunswick's cheapish forward P/E of 13, it's tough to disagree with KeyBanc's bullishness.