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Take the Leisure Road to Higher Profits

By Greg Pugh on October 19, 2012

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Patrick Industries (NASDAQ: PATK) is a major manufacturer and distributor of building and component products for the recreational vehicle (RV), manufactured housing (MH) and industrial markets. Considering today’s anemic economy, you might assume this company is struggling to stay afloat. Who can run out and afford a new RV?

However, an improving consumer sector and demographic trends that point to an aging population are working in this company’s favor.

On August 1, 2012, the stock of Patrick Industries closed trading at 11.05. It closed yesterday at about 20, an 81 percent increase in 11 weeks. This is a significant move for a stock in the leisure industry that makes materials for RVs. What’s behind a stock moving this much in such a short period of time?

The annual RV convention in Hershey, PA, billed as “America’s Largest RV Show,” ran from Sept. 19-23. Thor Industries (NYSE: THO) reported “record retail sales for units sold” at the annual show. RV maker and Berkshire Hathaway (NYSE: BRK-A) subsidiary Forest River said it sold “virtually hundreds of units” at the show.

Top motor home maker Winnebago Industries (NYSE: WGO) said its order backlog was the highest since before the recession, confirming a surge in demand in the RV market. It said it would increase production to meet rising demand.

RV demand is the growth driver for Patrick Industries, which makes walls, ceiling panels and siding for manufactured homes and RVs.

Patrick Industries reported that revenue for the second quarter of 2012 increased $33 million or 39.9 percent, to $115.6 million from $82.6 million in the same quarter of 2011. The revenue increase reflected a 61 percent boost in the company’s revenue from RV-related orders and a 15 percent increase in revenue from the MH industry.

As estimated by the company, wholesale unit shipments in the RV industry, which represented 69 percent of the company’s year-to-date sales, increased approximately 7 percent in the first six months of 2012 compared to the prior year period.

The company estimates that wholesale unit shipments in the MH industry, which represented 19 percent of the company’s six-month sales, were up approximately 20 percent from 2011. The industrial market sector, which accounted for 12 percent of first-half sales, saw new housing starts increase by approximately 27 percent for the first six months of 2012, compared to the prior year.

Patrick Industries just announced the acquisition of the business and certain assets of Creative Wood Designs, a manufacturer of furniture including interior hardwood tables, chairs, dinettes, trim, fascia, moldings, and other miscellaneous products for the RV industry.

Patrick Industries has a small market cap of only $220 million, so it will move the needle much easier than its larger competitors. Demographics look favorable for more RV growth in the coming years. By 2020, the number of Americans age 55 to 64 will be 73 percent higher than in 2000, according to consulting firm AgeWave.

Patrick Industries has an equity summary score of 9.5 out of 10 for a VERY Bullish outlook. Patrick Industries has a 12-month price target of 27.50.

Methodology: Our Equity Summary Score provides a consolidated view of the ratings of 10+ independent research providers. It uses the providers’ relative, historical recommendation performance along with other factors to give you an aggregate, accuracy-weighted indication of the independent research firms’ stock sentiment. The normalized analysts’ recommendations and the accuracy weightings are combined to create a single score. For the largest 1,500 stocks by market capitalization, these scores are then forcibly ranked against all the other scores to create a standardized Equity Summary Score on a scale of 0.1 to 10.0 for the 1,500 stocks.

What do you think of this article? Please post your feedback in the “comments” section below!

Greg Pugh, an income-investing expert, publishes a newsletter called Investing for Monthly Income.

 

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