We published a note on Malibu Boats (NASDAQ:MBUU) back in January and didn’t love the IPO. In short it seemed fully valued at the proposed IPO price. The IPO was a success and the shares have traded up to the current $19/share so it’s worked. But we wondered “where does this go from here?”
As usual we started with our Intrinsic Valuation (IV) model and even with fairly conservative assumptions the stock looks like it has room to run. Specifically to $34/share this year and $42 in 2016. That’s pretty nice upside.
Although we’d still insist that performance boat volumes won’t reach their prior peak anytime soon current volumes remain relatively low. There are some tailwinds from a US economy that continues to improve and with it, more job security and consumer confidence. Volumes of performance sport boats are still down over 50% from prior peaks in the all important Southwest US market.
One of the more interesting points we’ve considered is shifting attitudes around second home ownership versus purchases like RVs and boats. It’s not even an assertion now, much less a provable one but as property taxes spiral upwards it’s intriguing to think about how consumers might exploit other ways to vacation in style. It’s common knowledge that boats are costly items to buy and even more expensive to own, but higher cost alternatives (rental properties, hotel rates) and lower gas prices may contribute to a fairer view on the expense side of the equation.
If there’s a cautionary note on the market potential it is the other side of the energy price decline – a good part of the middle part of the country has enjoyed the benefits of elevated energy and commodity prices for the past few years, that may take a toll in that important part of the market.
Our conclusion on Malibu is that while the shares may not be dirt cheap they appear undervalued because investors don’t believe in the durability of the recovery and their ability to maintain what are very nice operating profit margins. If Malibu delivers strong results and positive guidance later this year the shares will be closer to our $34 IV than the current share price.
Base case IV model:
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