Analyst sees Brunswick leading a recovery

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Leisure product stocks, including Brunswick Corp., “are beginning to anticipate a retail demand recovery,” according to a report from analyst Edward Aaron of RBC Capital Markets.

“While too early to validate, this scenario still seems sensible from a risk-reward perspective. A little demand improvement would go a long way for these stocks,” Aaron wrote. “The beginning of a recovery would provide further upside to estimates (which generally reflect flattish industry demand) and would be positive for valuations. … While we have not yet seen evidence of a broad demand inflection, industry trends are moving in a positive direction.”

The report included specific information on Brunswick, Polaris and Harley-Davidson.

“Our recent checks point to a stable, but still soft, demand environment during the seasonally slow Q4 and into January. However, we are encouraged by: rate-of-change improvement for most categories, low dealer inventory levels, normalized discounting activity and marginally improving credit availability,” Aaron wrote.

“Harley and Brunswick have more upside potential in a broad demand recovery, but Q4 earnings might not be a catalyst following the recent strength in both stocks. We are not expecting 2011 estimates for Harley or Brunswick to be revised higher following Q4 earnings,” he wrote. “For both stocks, we would look for pullbacks and/or evidence of improving retail trends to add to positions.”

In discussing Brunswick specifically, Aaron said:

“We believe industry retail sales likely declined at a rate perhaps marginally better than the 14 percent experienced in Q3 and YTD. Relative strength within the boating market continues to be inversely related to price, which we attribute to several factors. First, discounting on larger fiberglass boats was far more pronounced in the year-ago quarter. Second, we believe the continuing migration of demand from new to used is more significant in higher-end boat categories. Third, smaller boats historically lead boat cycles, given their relative affordability.

“While boating is currently the weakest sector we track from a demand perspective, inventories have been worked down to levels that some industry contacts believe could present shortage problems during the upcoming selling season. Inventory aging has also improved considerably over the past few quarters and is now more in line with historical norms. Access to credit still isn’t great, but seems to be getting somewhat better at both the wholesale and retail levels.”

Looking ahead to next week’s scheduled Brunswick earnings report, Aaron wrote, “We expect management to introduce a planning assumption of flat to slightly down industry retail sales in 2011.”

Brunswick stock’s 52-week high and low are $22.89 and $10. The stock closed Tuesday at $20.49 a share.

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Comments

3 comments on “Analyst sees Brunswick leading a recovery

  1. DJinNC

    My recollection is that these so called analysts have not been too accurate in their past speculation about future Brunswick performance. 

  2. ex-bayliner

    So, at $20 a share and a P/E ratio of say 15, would lead to them expecting brunswick to make $150Million……..
    I’m sorry I just don’t believe it!
    Maybe the analysts are right, but I still can’t fathom out this stock price….

  3. john ennis

    I hate to rain on this parade but while smaller boats have historicaly led the way out of poor economic times don’t look for it to happen this time at least not in the near future. Small boats are purchased by middle class wage earners.who buy recreational toys ( that’s what boats are) when times are good not when they have been laid off or  worried about being jobless. and perhaps homeless. Economists are often like stock brokers. They shake the cup, roll  the dice and hope they are right.. but many say  this country will not get down to a normal 5 or 6 percent unemployment rate for at least five years. Here in Florida it is above 12% and this is one of the top boating states in the nation .Don’t plan on taking your PFD off anytime soon.

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