Buy Malibu boat stocks even though boat sales may be on the rise: Barron’s stock pick
Buying a boat this summer has been futile for many buyers. The dealerships have been exhausted for months. “Every dealer I know is out of stock,” says Matt Borisch, owner of Tommy’s, a large powerboat dealer based in Grand Rapids, Michigan.
Like cars, computer chips and chicken wings, the boating industry is going through a period of upheaval. Families flocked to the waters as vacation getaways dried up during the pandemic. Motor boat sales climbed 21% last year to $ 19.5 billion, the highest level since 2008. New boat registrations are 38% higher than last year, according to the industrial research company Statistical Surveys.
The wave can now reach its peak, as vaccinated consumers start spending their leisure dollars on trips to Europe and Disneyland. But one of the biggest manufacturers of motor boats,
(ticker: MBUU), still looks healthy, with strong orders through 2022.
“People started saying a few months ago that demand would slow down, but we haven’t seen it,” says Jack Springer, CEO of Malibu. The company has pre-sold more than 80% of the boats it plans to manufacture until June 2022, well above its normal rate of 50%, he says. “We’ve never seen an order book like this in our history,” adds Springer. Based on current trends, he doesn’t see stocks normalizing until 2024.
|Recent price:||$ 68.91|
|Modification of the current fiscal year:||ten%|
|2022E * Turnover (bill):||$ 1.1|
|2022E * Net income (in millions):||$ 144.0|
|EPS 2022E *:||$ 6.90|
|Market value (bil):||$ 1.5|
* Fiscal year ending in June 2022
The market seems skeptical about how long the good times will last, giving Malibu stock a low valuation. But even if sales slow, Malibu is expected to maintain its growth, supported by market-leading brands, lean manufacturing and innovative technologies fueling demand for its products.
“They sell in the most attractive markets in the industry,” said Rayna Lesser Hannaway, manager of the Polen US SMID Company Growth (PBMIX) fund, which owns the stock. “It’s a well-run business, and they have the strongest brands in sports boats.”
Based in Loudon, Tennessee, the company has stepped up production and acquisitions in recent years. The company bought maker Cobalt Boats in 2017, added Pursuit Boats in 2018, and struck a deal for Maverick Boat Group in January, paying $ 150 million. Malibu now manufactures 75 models, with top prices ranging from $ 89,000 to $ 243,000. Production is expected to reach 10,000 boats over the next year. The company recently expanded its cobalt factories and aims to increase Maverick production by 30% as it targets the saltwater fishing market.
The playbook is performing well, according to Berenberg analyst Rudy Yang, who sees the stock hit $ 100, up from recent prices of around $ 70. The company has successfully integrated Cobalt and Pursuit, he says, reducing costs and increasing margins. He expects similar synergies with Maverick once it is integrated, fueling revenue and earnings growth.
Malibu generates some of the best margins in the industry compared to its competitors
Mastercraft Boat Operation
(BC), in part because it is more vertically integrated. The company buys engine blocks from General Motors and Volvo, then “marinates” them for recreational boating, eliminating a manufacturing middleman. Malibu also custom builds its own boat towers, or frame covers, developing power folding versions for tight spaces in marinas or under decks, as well as its own trailers, racks and flooring. “If it can be made out of metal, we make it,” says Springer.
Malibu is also known for its high-tech features, including rear-facing cameras, large cockpit screens, and luxurious interiors. And he has played a leading role in the development of boats for wake-surfing, a growing water sport.
Malibu brand boats, its biggest sellers, are popular for wake surfing. The company launched an exclusive surf gate in 2012 that personalizes the boat’s wake for the pilot. “Wake surfing was hard to do before, and that made it easier,” says Springer. Other manufacturers now offer similar features, but Malibu has moved up to number one ski / wake boat with a 32% market share, according to Statistical Surveys.
Despite Malibu’s strengths, the title seems undervalued. The shares are trading at 10 times estimated earnings for fiscal 2022, ending next June, below their five-year average price-to-earnings ratio of 12 times future earnings. Wall Street analysts see earnings before interest, taxes, depreciation and amortization, or EBITDA, increase by 20% in fiscal 2022. Based on the value of the company relative to EBITDA, the The stock is trading at around seven times the 2022 estimate.
Skepticism about the stock reflects fears that the boating boom may collapse quickly: Industry sales tend to dry up in an economic downturn and take years to recover. Sports boat sales slumped 63% between 2006 and 2010. Even in a healthy market in 2018, retail sales were 20% below their 2006 peak. Hannaway. “There are fears that the business may not be replicable and that the rush to buy boats during the pandemic is easing. ”
But perhaps the market treats Malibu stocks too harshly. “The company is valued as if its business is more cyclical than current trends suggest,” she says. Incomes are expected to grow at a “low for teens” rate over the next five years, she believes, due to higher production, improved margins and some price increases.
Eric Wold, analyst at B. Riley Securities, also expects demand to persist, in part because many first-time buyers have started to navigate during the pandemic, fueling a new replacement cycle. “It will take years to rebuild inventory, even at pre-pandemic demand levels,” he says, seeing the stock at $ 103 a year from now on. Even at that price, he notes, it would trade in line with its historical average multiple.
Consensus estimates call for Malibu to generate Ebitda of $ 222 million in fiscal 2022, rising to $ 243 million in 2023. These gains are expected to push earnings per share by 18% over the next year to $ 6.85. At a multiple of 12 times the estimated 2023 earnings of $ 7.46, the stock would trade around $ 90. That sounds like a reasonable price for a boat builder who may be riding a long wave of demand.
Write to Daren Fonda at [email protected]