Boating and marine products maker Brunswick Corporation (NYSE: BC) shares have been chopping around its February pre-COVID highs while barely outperforming the benchmark S&P 500 index (NYSEARCA: SPY). The maker of leading edge boating industry products has been a pandemic beneficiary fueled by consumer demand for outdoor socially distanced leisure and recreational activities. Continued tailwinds stemming from potential rollbacks stemming from surging COVID-19 cases could extend acceleration of top line growth into 2021. The market is underestimating the strong recovery evidenced by its shares still trading at a bargain 14.5X price-earnings (PE) multiple after its blow-out Q3 2020 results. Prudent investors can monitor pullbacks to opportunistic price levels to consider adding some exposure.
Q3 2020 Earnings Release
On Oct. 29, 2020, Brunswick released its fiscal third-quarter 2020 results for the quarter ending September 2020. The Company reported an earnings-per-share (EPS) profit of $01.80 excluding non-recurring items beating consensus analyst estimates for a profit of $1.32 by $0.48. Revenues surged 25.2% year-over-year (YoY) to $1.22 billion beating analyst estimates for $1.03 billion for the quarter. The Atwood businesses contributed almost 40% of the Company sales and over half the operating earnings. Margin expansion lead to a steady annuity-based business to provide a robust baseline of earnings. The cancellation of the Miami International Boat Show in addition to many early 2021 shows doesn’t impact wholesale or retail demand as digital and e-commerce technology has greatly expanded the Company’s reach to a wider audience of potential new customers and dealers. The Company generated $396 million of free cash flow to pay down the $185 million remaining balance under its credit revolver and ending the quarter with $660 million in cash. The stock buyback program was started up again with the goal of buying back $100 million of shares in 2020 and quarterly dividend was raised to $0.27 per share.
Conference Call Takeaways
Brunswick CEO, Dave Foulkes, noted the robust retail demand as “extraordinarily strong” even as the primary selling season transitions to replenishing the historically low pipeline inventory levels. The Company has only 14 weeks of inventory on hand as a result of customer demand. The Company continues to hire workers at most facilities to bolster production, but full pipelines likely won’t be “fully rebuilt in 2021.” The high horsepower propulsion business continues to gain market share. Boat segment revenues grew 18% YoY driven by higher wholesales to dealers. The Freedom Bookclub grew to 244 locations with 36,500 members with over 3,000 new members added in Q3. Over half the Brunswick boat sales from June through August were first time buyers whom also are the youngest since 2011. The shifting customer demographics is undergoing a transformation with more participation from Hispanic and Asian buyers. This is credited to Brunswick’s expansive new products, participation models and advances in digital capabilities. A recent vertical trade show by its land and sea distribution business generated 16% higher sales than the equivalent physical show last year. U.S. sales grew 24% YoY and 25% internationally. Even a flat retail environment in 2021 still requires manufacturing and wholesaling seven to nine thousand more boats to satisfy retail demand.
Raising Forward Guidance
Brunswick raised its full-year 2021 EPS guidance to a range of $5.75 to $6.25 versus $5.31 consensus analyst estimates. The Company raised revenue guidance for FY2021 to the $4.7 billion to $4.9 billion range compared to $4.43 billion consensus analyst estimates. The momentum is apparently still robust enough to carry into 2021. Prudent investors can monitor shares for opportunistic pullback levels to consider taking some exposure ahead of the impending range breakout.
<><> insert BCchart1-labelled graphic <><>
BC Opportunistic Pullback Levels
Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for BC stock. The monthly rifle chart has a stochastic mini pup attempting at the 80-band as the 5-period moving average (MA) support is rising at $63.10. This can trigger an upside breakout towards the upper Bollinger Band (BB) near the $73.99 Fibonacci (fib) level. The weekly rifle charts formed an initial market structure low (MSL) buy trigger above the $39.48 with a higher second MSL trigger above $63.49. A deflection off the second MSL trigger level can present opportunistic pullback levels at the $62.64 fib, $59.98 fib, $55.65 fib and $51.32 fib. The nominal upside trajectory ranges from the $51.86 to $64.88 pre-COVID fib high levels from February 2020. There is potential for a weekly seed wave breakout on the second MSL trigger that can expand upside trajectories to the potential reversal zone (PRZ) 3 at $95.66, the 1.618 final target.
Companies in This Article:
