Thor Industries: Recreational Vehicle Leader at Attractive Valuation

Danilo Santiago of Rational Investment Methodology presented his in-depth investment thesis on Thor Industries (US: THO) at Best Ideas 2019.

Thesis summary:

Thor Industries is the parent company of a collection of RV brands in North America. Over the past two years, the company produced and sold close to 250,000 RVs in the region. The most recent acquisition in the U.S. market was Jayco, which significantly increased THO’s market share in the country. Now Thor has close to 50% of the U.S. market (by units).

The most significant competitor, Forest River, which holds close to 35% of the market, is owned by Berkshire Hathaway. Warren Buffett’s companies rarely engage in price wars, which means that Thor’s biggest competitor should behave rationally. Therefore, although the RV industry will always be a competitive one, the risk of a devastating price war is small.

Thor became more difficult to analyze as the company announced the acquisition of Erwin Heymer Group, the biggest RV manufacturing company in Europe. After the deal closes at the beginning of 2019, Thor will have 75% of their sales in the U.S. and 25% in Europe. Analyst estimates do not incorporate an increase in EPS due to the deal.

The market has been disappointed with declining sales in the wholesale channel, as retailers need to adjust their inventories since the North American market appears to have reached a plateau. The risk is that the decline may spread to the retail channel.

Even when modeling a significant recession in a year or so, the potential cash flow Thor can generate implies that long-term investors can buy the shares with an implied IRR of 16+% (doubling one’s capital in 5 ½ years).

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About the instructor:

Danilo Santiago is the founder of Rational Investment Methodology (RIM), that focuses on a quasi-static group of approximately 60 publicly traded, liquid US stocks – most of these companies, defined as RIM’s Circle of Competence, have been followed for more than a decade. RIM employs extensive industry research and analysis, building highly detailed proprietary discounted-dividend models, which are used to determine “fair values” of companies based on different scenarios. Lastly, RIM constructs “rules-based” model portfolios (long-short, long-only or long- aggressive) with a company-specific margin of safety relative to “fair value”, using its proprietary Odysseus Portfolio Construction Tool. Selected model portfolios are replicated into clients’ accounts, using Interactive Brokers’ platform, adjusting the number of shares in each client’s portfolio in a pari-passu manner. Mr. Santiago is a MBA from Columbia University and has a B.S. in Electrical Engineering from the University of São Paulo.