Brunswick stocks are trading at 9.4 times expected earnings, which is close to its lowest price/earnings ratio since 1999.
That’s well below the median of 13.7 the company’s stocks have carried over the past 20 years, and The Wall Street Journal says that “absent a severe economic storm, Brunswick shares could soon be riding higher in the water.”
But investors are worried, despite Brunswick’s focus on being less cyclical than the overall boating industry, the newspaper pointed out. The company shed its billiard business in 2014, followed by its bowling business in 2015, and its fitness business earlier this year.
Brunswick put Sea Ray up for sale early last year, but said the offers it received didn’t reflect “appropriate value.” That led the company to shutter its yacht and sport yacht segment of the brand, focusing instead on models from 24 to 40 feet. The Wall Street Journal said the smaller “activity-based boats” are less economically sensitive.
The engine business has benefitted from a shift away from sterndrive boats to outboard-powered models, the newspaper said, and its parts and accessories business “provides a steady income stream” that now accounts for half the company’s profits. It recently acquired Freedom Boat Club, a move that provides another revenue source, according to the newspaper.
“Those moves won’t eliminate cyclicality from the business, much less make it recession proof, but they should keep it from reaching for the Dramamine with every ripple in the economy,” the newspaper said.
Still, shares have slipped about 30 percent in the past year and are near their lowest levels since 2016.
Concerns about the macroeconomic environment have been compounded by a tough spring selling season that led to elevated levels of unsold boats industrywide, according to the WSJ. Worries about the staying power of the U.S. economy, given how badly the last recession treated Brunswick, have only made matters worse
The lousy spring weather means dealers will have to work through excess inventory, but that’s something analysts have factored into their estimates.
“Brunswick is more seaworthy than it was in the past,” the newspaper notes, adding that “investors might want to step on board.”
Following the publication of the story on Tuesday, Brunswick’s shares rose from a Tuesday low of 44.31 to 45.73 yesterday.