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Analyst gives “top pick” rating for MarineMax stock

MarineMax stock rose 9.3 percent Tuesday as the company announced it had turned its first fourth-quarter profit before an unusual item since 2007, emerging as a “top pick” and leading a B. Riley & Co. analyst to raise his price target for the company’s shares from $16.25 to $20.

Jimmy Baker, who upgraded the company’s stock from “hold” to “buy” in October, wrote in a report released today that a revenue shortfall the company reported Tuesday was more than offset by an “exceptional” gross margin gain of 26.8 percent.

The gain was a welcome surprise because MarineMax has delivered consistently strong top-line results this fiscal year, but margin execution “had been erratic,” Baker wrote.

Recent quarterly reports from MarineMax and Brunswick Corp. have led B. Riley to shift its favor from Brunswick stock to that of MarineMax.

“Throughout the earlier stages of the new boat recovery, which was led by outboard-powered offerings, we generally preferred shares of Brunswick,” which B. Riley downgraded last spring from “buy” status to “neutral,” Baker wrote. “Not necessarily because Brunswick was a better way to gain exposure to the new-boat recovery — frankly, it wasn’t, as Brunswick Corp.’s Boat Group has failed to meaningfully grow sales since 2011 and is still losing money — but rather due to Brunswick Corp.’s operating leverage and cost-cut opportunities out of the 2009 trough, given its excess capacity.”

“Fast forward to today, Brunswick recently reported third-quarter results that featured negative operating leverage while increasing [capital expenditures] to bring on additional outboard capacity,” Baker wrote. “MarineMax is a substantially better pure play on the high-average-selling-price fiberglass inboard cruiser market, given Brunswick has virtually no engine exposure to this category, and just a fraction of its remaining Boat Group is focused on this market. At current levels, we substantially prefer MarineMax.

“Beyond the recent share appreciation, our upgrade thesis is playing out well as [MarineMax] noted that its sales gains in the quarter were entirely the result of improving mix toward larger fiberglass product,” Baker wrote. “We’ll gladly trade unit growth for dollar growth, and apparently so will investors, who bid shares up 9.3 percent.”

MarineMax “has been able to demonstrate growth almost entirely from market share gains,” Baker wrote. “Driving share gains in a declining demand environment made delivering meaningful profitability challenging,” but Baker predicts that the high-average-selling-price fiberglass inboard cruiser market is bouncing off its unit bottom of about 2,100 units, compared with its pre-recession range of between 7,000 and 12,000 units.

— Reagan Haynes


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