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Analyst upgrades Brunswick stock

RBC Capital Markets is upgrading Brunswick Corp. stock from sector perform to outperform.

"With liquidity risks now behind it and dealer inventories coming in line, we view [Brunswick] as a compelling three-year earnings recovery story," analyst Edward Aaron wrote in his report. "Our call requires only a 20 percent demand recovery over the next three years following peak-to-trough decline of nearly 60 percent since 2005."

"In the interim, we believe the rate of improvement in profitability and inventory metrics beginning in 2010 will provide reason for optimism, even if demand is slow to recover," he added.

At midmorning, Brunswick was trading at $10.22 per share, up from its opening of $10.03 per share. Brunswick's 52-week high and low are $14.10 and $1.82.

Aaron said that while economic conditions remain challenging, RBC recently surveyed nearly 150 dealers and, though tight credit continues to take its toll, industry demand appears to be stabilizing. Feedback suggests sales are tracking down 20 to 30 percent.

Meanwhile, inventory levels are in much better shape, especially for Brunswick dealers.

"With flat demand, we estimate that Brunswick's boat segment revenue will grow 65 percent and 35 percent, respectively, over the next two years," Aaron said.

The dealer survey shows that overall business conditions remain "brutal," and concerns over competitor discounting and tight credit have increased from last year, though concerns over housing and gas prices have decreased from 2008.

Nearly 70 percent of those surveyed said they were "very concerned" about floorplan financing and reported margins significantly down.

Click here for the full report and dealer survey.


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