Marine Companies Face Lower Price Targets Amid Demand Uncertainty

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The near-term sentiment for recreational marine-focused companies is expected to remain “cautious” amid ongoing uncertainty surrounding demand trends and concerns about elevated promotional efforts continuing into the second half of 2024, B. Riley Securities reported on Wednesday.

In response to these uncertainties, the brokerage has lowered its price targets for Brunswick, Malibu Boats, MarineMax, and MasterCraft Boat. The current valuations of these companies suggest an expectation that each will reduce its financial outlooks, though the degree of reduction remains in question based on recent trends and inventory levels, according to B. Riley analyst Eric Wold.

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Statistical Surveys data indicated that new boat registrations dropped approximately 10% year over year in May, following a modest 0.8% increase the previous month. This decline was surprising given the significant promotional efforts by both original equipment manufacturers and dealer groups aimed at stimulating consumer purchases and reducing inventory.

Investors have grown increasingly concerned that the recent registration data might indicate an underlying negative shift in boat demand. The management teams of Brunswick, Malibu Boats, MarineMax, and MasterCraft are expected to focus on industry channel inventory levels relative to their brand-specific inventories in their upcoming quarterly results and guidance.

“If inventories remained above targeted levels at the end of June, we believe the recently elevated promotional activity is likely to linger into the September, and possibly December, quarter — which could adversely impact dealers’ willingness to purchase additional boats and the ability of OEMs to ramp up production on the preferred model year timetable,” Wold wrote.

Among the group, Brunswick is considered the best positioned to benefit from a potential uptick in demand, though B. Riley expressed concerns that high inventories and increased promotional activities might impact Malibu Boats’ wholesale demand and margins in early 2025.

MarineMax, despite potential demand weaknesses, may find solace in Island Capital Group’s recent proposal to acquire certain businesses of the company, which B. Riley believes could unlock shareholder value.

“While near-term demand trends remain uncertain and elevated promotional efforts may continue into the second half of 2024, we believe that each of the companies under coverage has seen material improvements in their balance sheets in recent years. Furthermore, their flexible manufacturing models should help maintain positive cash flow,” Wold concluded.