Wednesday, September 13, 2006

Calls of Note Part 5

- RBC Capital has come cautious comments on couple of recreational product stocks:

Firm notes they regard Winnebago (NYSE:WGO) as one of the best-managed companies in their coverage and the superior operator in the motorhome category. WGO offers relative stability when market conditions are challenging.

In the near term, however, they are concerned that business trends are weaker than Street estimates reflect. Analysts are forecasting a fairly strong recovery year in FY-07 (ends August), with EPS growth in the 30% range. This seems unlikely, in firm's view, as a turn in business is not expected until the second half of FY-07 at the earliest. Firm is fine-tuning their model, but leaving estimates unchanged. FY-07 estimate of $1.76, which is low on the Street and $0.15 below consensus, reflects an optimistic scenario. They also believe estimates for Winnebago's Q4 (ended August) could be on the aggressive side.

Because WGO shares have held up well during this downturn, shares appear relatively expensive on a valuation basis. The stock trades at above average multiple on both earnings and price-to-sales.

Tgt goes to $30 from $32. Maintains Sector Perform.

Brunswick Corporation (NYSE:BC) is one of firm's best long-term ideas and is well below its
intrinsic value. However, they question whether investors will recognize this value at this stage of the cycle. While a three-year investor can comfortably buy BC shares today, in firm's opinion, they believe investors with a 6-12 month time horizon should let the numbers shake out first. Given dealers' low appetite for inventory, they think Brunswick will need to maintain low levels of production into 2007. To better reflect this view, they are lowering 2007 estimate to $2.35 from $2.65. Firm's revised forecast compares to consensus of $2.51.

Maintains $33 tgt and Sector Perform rating.

Notablecalls: “Just when I thought I was out…they pulled me back in!” Both BC and WGO looked like they were forming a bottom. And now RBC comes out and kills the process. I'm not going to call this one actionable but it's going to cap the upside in these stocks.

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