Buy • Price 16.57 on Nov. 21
by B. Riley & Co.
Brunswick controls several best-in-class assets that should allow it to grow faster than its end markets, while driving exceptional returns. The company [which makes marine, fitness, bowling, and billiards equipment] has revolutionized much of its core marine businesses over the past several years, emerging from the marine-industry depression with a leaner, more agile business model. In sum, we believe that the seasoned management team has positioned Brunswick to disproportionately benefit from recovering end markets, while stripping out enough costs and adding enough durable revenue to sufficiently buoy the company during future cyclical troughs. Our investment thesis was generally reinforced during our recent meeting with management…We continue to see growth in the marine businesses despite a sluggish industry backdrop. Management was particularly upbeat about the trends in outboard-boat sales, which could approach prerecession levels in the next three to five years. Such a recovery would be materially above our model. The high-margin fitness segment has considerable runway for growth.…We have made several adjustments to our model. Our 4Q11 EPS is up one cent, but our EPS estimates in future periods are slightly lower, due to lower operating leverage in the marine businesses, and slightly lower debt-repurchase assumptions. We have also significantly increased our capital-expend-iture expectations for 2012-13, as it appears that the company has a wealth of high-ROIC [return on invested capital]…projects on its radar. Our price target remains unchanged, at 41. We apply 16 times EPS and 7.2 times Ebitda [earnings before interest, taxes, depreciation and amortization] multiples (unchanged) to our 2014 estimates and discount the results back to year-end 2012 at a rate of 15%. Market cap: $1.5 billion.
Jimmy Baker, with B. Riley & Co., wrote that engine sales are expected to be up 4 percent this quarter, compared with the same period last year, and that boat sales should be up 11 percent year over year, driven largely by a solid uptick in wholesale volume.
Continue Reading >Following Brunswick’s announcement, Jimmy Baker, an analyst with B. Riley, noted, “While this increases the total Boat Group dealer count by a mere 1 percent, we note it is the quality, not quantity of dealers that drive sales. For instance, MarineMax represents less than 3 percent of the total Brunswick dealer network, and yet it accounts for 20 percent of total Boat Group sales. We recognize certain of these dealers … as significant dealers in other lines; given the brand strength of Sea Ray and the high ASP nature of Meridian, these new dealers could become meaningful contributors to Brunswick sales growth and should accelerate Brunswick’s market share gains.”
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