There have been plenty of stocks on the move this week in the aftermath of Hurricane Harvey. However, BMO Capital Markets says investors should think twice about buying RV stocks as a Harvey trade.
Analysts such as Baird Equity Research’s Craig Kennison, expect major demand for RVs from the Federal Emergency Management Agency due to the need for emergency shelter.
“The RV industry likely will be called upon to provide temporary housing in the aftermath of Harvey,” Kennison wrote earlier this week.
But while demand for RVs may surge due to the storm, BMO analyst Gerrick Johnson says demand isn’t necessarily the issue for RV stocks.
“Given capacity constraints, we would not view demand from FEMA as incremental, but rather a reallocation of manufacturing assets away from the robust retail market,” Kennison wrote on Friday.
Kennison said Winnebago Industries, Inc. WGO 3.16%, which is up 4.3 percent in the past five days, will be particularly insulated from any FEMA demand because of its high-end product mix. Instead, FEMA will likely be most interest in the lower-priced models from Thor Industries, Inc. THO 0.34%.
Unfortunately, Kennison said Winnebago, Thor and other RV makers have been struggling to keep up with retail demand as-is. In the most recent quarter, Thor reported that towable order backlog has more than doubled from a year ago.
With any FEMA orders likely bumping retail orders, the impact of Harvey likely comes down to pricing of the government models, and Thor has not commented on the issue.
BMO maintains…
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