Description

Thor Industries is a small cap cyclical with no long term debt and current ratio of 3:1 selling at a 30% premium to equity, less than 8 times peak earnings (CY2000) and 6.5 times cash flow.

From Valueline: "Thor Industries is the successor to a company of the same name that was formed in July 1980 to acquire the Airstream Division of Beatrice. Airstream was founded in 1931. Thor completed an IPO in 1984 and moved to the NYSE in 1986. Thor manufactures a wide range of buses, mobile homes and travel trailers. It is second in it's industry in RV's, first in travel trailers, and first in North America in the small and mid-sized bus category."

I know at this point you're thinking oh great, another crappy RV manufacturer in a cyclical trough. However, the key to this story is threefold. First, they have no debt while many of their competitors are loaded with debt. Second, the key driver of this business is now buses and not RV's or trailers. Third, they have earned higher returns on capital than their competition throughout the entire economic expansion. They are still cash flow positive (unlike FLE for example) and are expanding bus manufacturing capacity this year as demand in that side of the business continues to grow. Capital for expansion is being funded internally through cash flow. Their order backlog for buses is up 46% in the past year.

Market cap less than 280 million. About 3500 employees. 11.99M shares out, a float of 4.7M. Officers and directors own 46% of the outstanding shares. So I think it's safe to say that management "eats it's own cooking". No long term debt, current ratio 3:1, shareholder equity 207M. last year's cash flow 40.8M, net income 36.1M on sales of 894M. Around 139M in working capital with about 52M in cash. No losses on the income statement the past 11 years (cash flow positive throughout the 1990-92 recession). Shareholder equity has compounded 14.5% per year the past 10 years while the depreciation rate has been 9.8%.
This business is either number 1 or number 2 in north american market share in all of its business lines. Overall sales are expected to decline this year by about 10%. Bus sales will probably be up again this year as Thor continues to develop new bus lines. They were a pioneer in the development of propane engines for buses and are now in a pilot program to develop a small sized bus that runs on fuel cells.

The bus manufacturing side is clearly headed towards becoming the key sales line for the business and I do not believe that this is reflected in THO's market cap. In addition, this company deserves a premium to it's industry because of it's stellar balance sheet and higher historical returns on capital.

What is wrong: capital intensive business, management recently backed off a planned hostile takeover of a competitor, management could dissipate the finanical strength of the company with ill timed acquisitions, business may crater, plants are unionized, RV industry is characterized by overcapacity. Higher oil prices could sink the RV industry, but is likely to improve demand for bus transportation at the municipal level, where the company is strongly positioned.

Catalyst

Cyclical in an out-of-favor industry that is in a trough, but with unrecognized value due to a growing business line that is poised to become the primary sales component of the company in the next expansion.