Wednesday, October 14, 2009

Love Thor, Not its Stock

One of the best (and least known) success stories in corporate America is Thor Industries (THO).

The company was founded on August 29, 1980 when Wade Thompson (Chairman and CEO) and Peter Orthwein (Vice Chairman) purchased Airstream from Beatrice for $7.5 million. Beatrice was so eager to get rid of Airstream that they loaned Thompson and Orthwein the full $7.5 million purchase price.

The shrewd pair of dealmakers made Airstream profitable in their very first year of ownership. And Thompson and Orthwein have been at it ever since. They quickly paid off Beatrice and never borrowed another dime from anybody!

Today, Thor is an industry leader with 30% of the RV market. And they've added nearly every RV brand worth having to the portfolio, from Keystone and Four Winds to Damon and Dutchmen.

Thor became a public company on January 11, 1984. A NYSE listing followed on August 29, 1986 and the company paid its first dividend on November 3, 1986. Today, the company has a fortress balance sheet with a mountain of cash and no debt.

Thor's stock price peaked along with the RV industry in 2006-2007 with the shares reaching $50+ a share. Today those same shares trade at $32.23 each, but they've been as low as $9 within the last 8 months!

Throughout the oil boom and the market crash, investors had plenty of reasons to sell Thor. Big ticket discretionary items that need gasoline to propel or pull them? You get the idea!

Even management was in a dour mood. During this period, I spoke with one of the company’s founders and implored him to repurchase shares. He could not have been more negative about the industry or more emphatic about the extreme lack of visibility. Both Thompson and Orthwein are nothing if not candid.

In any case, the underlying message was clear: No share repurchases at this time. Thank you very much.

Management was right (in part). The RV industry was in trouble. It still faces massive problems. You wouldn't know it from THO's current stock price, but the RV industry has imploded with shipments down 30-60 percent or more depending on the segment. And it isn't coming back anytime soon.

But I was right too.

Late 2008 and early 2009 was a great time for Thor to repurchase its shares. At the 2009 lows, Thor’s cash was around $300 million or roughly 50% of the company’s market cap. That's not a misprint. 50 percent!

If there are 10 competitors in an industry and their market shrinks 50% that’s obviously not good. But what if 8 competitors go out of business? The remaining 2 should do OK, right?

This is Thor's world!

Thor is the biggest RV and bus manufacturer anywhere and most of their competitors are dead (Fleetwood, Monaco, etc) or dying (you know who you are). Only Berkshire subsidiary Forest River can claim more staying power. In short, Thor is going to be around for a long time. They will live to see a recovery if it comes. In the meantime, they'll gain from the pain of others.

Company cash is little changed at around $300 million. But the stock has soared: up 240% from the March lows and 150% year-to-date. Just imagine if management had repurchased a third of the company for $200 million?!? I get a thrill up my leg just thinking about it! But, alas, it didn't happen.

You could accuse me of perfect 20/20 hindsight if I hadn’t actually placed the call to my idols Thompson and Orthwein! So I'm on the record. By the way, I'm not bragging. Thor doesn't have an investor relations office. Thompson and Orthwein are it!

Oh well, the duo didn't follow my advice, but they've done OK on their own. Besides, if anyone really listened to me, I wouldn’t be the “lonely” value investor. But I digress.

Today that same $200 million would buy around 12% of Thor’s outstanding shares as the market cap approaches $2 billion.

Thor is one of my all time favorite companies, but it is time to sell. There will be other opportunities to partner with some of the best managers around.

One possible caveat: Thor recently started a financing arm (Thor Credit) in response to an exodus out of the RV finance market. Anyone who remembers Lucent knows to be very afraid of vendor financing. Thor Credit scares me. If not managed carefully, it has the power to destroy what Thompson and Orthwein have spent decades building.

So if not Thor, then what? A company that looks similar to the “March 2009 edition of Thor Industries” is Superior Industries (SUP). Take a look and let me hear your thoughts.

Disclosure: I own SUP shares. Not THO shares.

1 comment:

  1. I like the Seeking Alpha certification :)

    "Besides, if anyone really listened to me, I wouldn’t be the “lonely” value investor." :)