Buying a boat this summer has been futile for many buyers. The dealers have been sold out for months. “Every dealership I know is out of stock,” says Matt Borisch, owner of Tommy’s, a large powerboat dealership based in Grand Rapids, Michigan.
Like cars, computer chips and chicken wings, the boating industry is going through a period of disruption. Families flocked to the waters as vacation getaways dried up during the pandemic. Motorboat sales soared 21% last year to $19.5 billion, the highest level since 2008. New boat registrations are ahead of last year’s pace 38% , according to the statistical firm Statistical Surveys.
The surge may now be peaking as vaccinated consumers begin to spend their leisure dollars on trips to Europe and Disneyland. But one of the largest manufacturers of motorboats,
(ticker: MBUU), still looks healthy, with strong orders through 2022.
“People started saying a few months ago that demand was going to slow down, but we haven’t seen it,” says Jack Springer, CEO of Malibu. The company has pre-sold more than 80% of the boats it plans to manufacture through June 2022, well above its normal rate of 50%, he says. “We’ve never seen an order book like this in our history,” adds Springer. Based on current trends, he doesn’t see stocks normalizing until 2024.
|Change since the beginning of the year:||ten%|
|2022E* Sales (bil):||$1.1|
|2022E net income* (millions):||$144.0|
|Market value (bil):||$1.5|
*Fiscal year ending June 2022
The market seems skeptical about how long the good times will last, giving Malibu shares a low valuation. But even as sales slow, Malibu is expected to maintain growth, supported by market-leading brands, lean manufacturing and innovative technologies that are fueling demand for its products.
“They sell in the most attractive markets in the industry,” says Rayna Lesser Hannaway, co-manager of the
Polen US Small Business Growth Fund
(PBSRX), which owns the stock. “It’s a well-run business, and they have the strongest brands in sports boats.”
Based in Loudon, Tennessee, the company has ramped up production and acquisitions in recent years. The company bought manufacturer Cobalt Boats in 2017, added Pursuit Boats in 2018 and struck a deal for Maverick Boat Group in January, paying $150 million. Malibu now builds 75 models, at premium prices ranging from $89,000 to $243,000. Production is expected to reach 10,000 boats over the next year. The company recently expanded its cobalt plants and aims to increase Maverick production by 30% as it targets the saltwater fishing market.
The playbook is doing well, says Berenberg analyst Rudy Yang, who sees the stock reaching $100, up from recent prices of around $70. The company has successfully integrated Cobalt and Pursuit, he says, reducing costs and increasing margins. It expects similar synergies with Maverick once it is integrated, fueling revenue and bottom line growth.
Malibu generates some of the best margins in the industry, compared to its competitors
Mastercraft Boat Holdings
(BC), in part because it is more vertically integrated. The company buys engine blocks from General Motors and Volvo, then “marinizes” them for recreational boating, eliminating a manufacturing middleman. Malibu also custom builds its own boat towers, or frame liners, developing power-folding versions for tight spots in marinas or under bridges, as well as its own trailers, racks and floor liners. “If it can be made of metal, we make it,” Springer says.
Malibu is also known for its high-tech features, including rear-facing cameras, large cockpit displays and luxury interiors. And he played a leading role in the development of boats for wake-surfing, a growing water sport.
The boats of the Malibu brand, its biggest sellers, are popular for wake surfing. The company launched a proprietary surf door in 2012 that customizes the wake of the boat for the rider. “Wake surfing used to be hard to do, and this has made it easier,” says Springer. Other manufacturers are now offering similar features, but Malibu has risen to the top spot among ski/wake boats with a 32% market share, according to statistical surveys.
Despite Malibu’s strengths, the title seems undervalued. The shares are trading at 10 times estimated earnings for fiscal 2022, ending next June, below their five-year average price-to-earnings ratio of 12 times forward earnings. Wall Street analysts see earnings before interest, taxes, depreciation and amortization, or Ebitda, increase 20% in fiscal 2022. Based on enterprise value to Ebitda, the stock is trading at around seven times 2022 estimates.
Skepticism over the stock reflects fears the yachting boom could soon collapse: industry sales tend to dry up in economic downturns and take years to recover . Sports boat sales plummeted 63% between 2006 and 2010. Even in a healthy market in 2018, retail sales were 20% below their 2006 peak. haven’t done a great job of sustaining growth,” Hannaway said. “There are concerns that the business will not be repeatable and that the rush to buy boats during the pandemic will ease.”
But the market may be treating Malibu shares too harshly. “The company is valued as if its business is more cyclical than current trends suggest,” she says. Revenues are expected to grow at a “low for teens” rate over the next five years, she estimates, thanks to higher production, margin improvements and some price increases.
B. Riley Securities analyst Eric Wold also expects demand to persist, in part because many first-time buyers have started browsing during the pandemic, fueling a new replacement cycle. “It will take years to rebuild inventory, even at pre-pandemic demand levels,” he says, seeing the stock at $103 a year from now. Even at that price, he notes, it would trade in line with its average historical multiple.
Consensus estimates call for Malibu to generate $222 million in EBITDA in fiscal 2022, rising to $243 million in 2023. These gains are expected to boost earnings per share by 18% over the next year to $6.85. At a 12 times multiple of estimated 2023 earnings of $7.46, the stock would be trading around $90. Sounds like a fair price for a boat maker that can ride a long wave of demand.
Corrections & Amplifications: Malibu shares are held in the Polen US Small Company Growth Fund (PBSRX). A previous version of this article incorrectly stated that it was held in the Polen US SMID Company Growth Fund (PBMIX).
Write to Daren Fonda at [email protected]