Operational Improvements And New Products Will Drive Future Success In Recreational Products

Key Takeaways

• Strategic control over inventory and production aligns supply with demand, enhancing future revenues and net margins.
  
• Growth in recurring revenue streams and operational improvements aim to stabilize and boost earnings while expanding net margins.
  
• Broadened discounts, low production rates, and geopolitical risks are pressuring Brunswick's revenues and margins, especially in marine and propulsion sectors.

Catalysts

Designs, manufactures, and markets recreation products in the United States, Europe, the Asia-Pacific, Canada, and internationally.

• Brunswick's strategic control over pipeline inventory and adjusted production levels may result in increased future revenues and improved net margins by aligning supply with demand more effectively.
  
• The company's emphasis on growth in its recurring revenue businesses, such as the Freedom Boat Club and aftermarket engine parts, is anticipated to stabilize and potentially boost earnings, contributing to expanded net margins.
  
• Brunswick's completion of the Brownsburg, Indiana facility transition is expected to enhance operational efficiency and delivery times, potentially leading to sustained operating margin improvements and increased international sales.
  
• Ongoing investments in product innovation and new introductions, with new offerings in the Navico Group, are expected to drive revenue growth and market share expansion, ultimately enhancing earnings.
  
• Brunswick's prudent capital management, including share repurchases and increased commitments to credit facilities, provides financial flexibility, expected to support EPS growth through strategic capital allocations.

Brunswick Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Brunswick's revenue will grow by 2.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.4% today to 9.6% in 3 years time.
• Analysts expect earnings to reach $570.9 million (and earnings per share of $8.65) by about December 2027, up from $291.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.7x on those 2027 earnings, down from 16.2x today. This future PE is lower than the current PE for the US Leisure industry at 17.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.87%, as per the Simply Wall St company report.

Brunswick Future Earnings Per Share Growth

Risks

• Brunswick faces challenges from a declining retail market, as new boat retail unit sales are estimated to be down approximately 10% versus the prior year, which could impact both revenue and earnings.
  
• The company's propulsion business has been impacted by lower sales and operating earnings due to reduced bulk production schedules and OEM customers maintaining lower production rates, affecting revenue and net margins.
  
• Navico Group has experienced lower sales and operating earnings due to continued soft marine OEM order rates and delayed aftermarket orders, impacting both revenue and profitability.
  
• Elevated retail discounting and promotion levels, combined with cautious dealer reordering, could pressure revenue and operating margins in the short term.
  
• Geopolitical tensions, election-related activities, and hurricanes have potential to disrupt operations and consumer demand, posing risks to revenue and earnings.

Valuation

• The analysts have a consensus price target of $87.25 for Brunswick based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $100.0, and the most bearish reporting a price target of just $70.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $5.9 billion, earnings will come to $570.9 million, and it would be trading on a PE ratio of 12.7x, assuming you use a discount rate of 7.9%.
• Given the current share price of $71.42, the analyst's price target of $87.25 is 18.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.