Camping World: Raising my price target to $100 per share (NYSE:CWH) – Seeking Alpha | Gmx Pharm

Marc Dufresne/E+ via Getty Images

investment work

In light of increased share buybacks, the long-term outlook for the recreational vehicle market, and the company’s guidance to achieve nearly $1 billion in EBITDA in 2021, I have raised my price target on Camping World Holdings (NYSE:CWH) to $100 per share. First, the RV market appears to have entered a new phase of growth as unaffordable housing and remote work push consumers into space. Second, Camping World’s network and Good Sam Club allow the company to generate more gross profit and EBITDA. If Camping World continues to trade below $34 per share, the company could buy up to 10% of its Class A float in 2022.

camp of the camping world
Data from YCharts

The latest growth drivers in the RV industry

The RV industry appears to have 5 to 10 years of healthy growth ahead of it as the pandemic has resulted in new growth drivers emerging within the industry. The first driver is the massive demand for remote work, which will allow workers more travel flexibility. A FlexJobs survey concluded that 58% of respondents wanted to work remotely full-time in the wake of the pandemic. As employers support this demand for remote work to preserve their human capital, it is highly likely that remote work and virtual meetings will become a new normal. The increased flexibility of working from home not only allows individuals to take more vacation time, but also allows them to essentially work from anywhere and stay as long as they like. Brian Chesky, the CEO of Airbnb (ABNB), even stated that due to remote working, we are on the verge of a “travel revolution” that will also greatly benefit the RV industry. The second factor that will accelerate the growth of the RV market is that RVs are becoming an alternative way of life. With home prices in North America soaring parabolic, combined with high rental rates in major American cities, Americans are increasingly choosing to make the move to RV living. For these reasons, the CAGR for the recreational vehicle market is expected to be around 7% from 2022 to 2027.

The added value of the Good Sam Club

Now that we’ve discussed the growth drivers for the RV industry, it’s important for me to emphasize that Camping World is much more than just a simple RV retailer. Camping World is a one stop shop for all your outdoor retail needs. The company offers services ranging from travel assistance, RV appraisals, insurance programs and more. Additionally, Camping World’s Good Sam Club segment demonstrates how the company can increase customer retention, customer acquisition and the company’s EBITDA. First, the Good Sam Club segment currently has an 85% gross margin. Second, growth in new members could potentially lead to individuals purchasing a new RV, boosting the company’s gross profit and EBITDA. The following image below shows the potential value creation of the Good Sam Club segment if just 5% of their membership growth between August 2020 and August 2021 made a new RV purchase in 2022. I used the gross profit per new vehicle sold found in the company’s most recent earnings report and used a per-unit EBITDA margin of about 13%.

Camping World Good Sam Club segment

Excel

Source: Author’s calculation

As you can see, just a 5% conversion from the growth of new members through the Good Sam Club could contribute 7% growth to the company’s EBITDA. After all, that doesn’t even factor in the full potential for EBITDA growth if the RV industry continues to grow at a solid pace and Camping World maintains its impressive customer acquisition strategies. Therefore, it is important for investors to remember that Camping World is not just another RV retailer, as its value proposition of being a one-stop shop for all your outdoor camping needs creates a brand loyalty that gives them a competitive advantage.

Increased impact of share buyback program on my new price target

In addition to the positive outlook for the RV industry and Camping World’s competitive advantage, Camping World is very well rewarding to investors. The company just increased its Class A common stock repurchase program by an additional $152 million. They currently pay a 6% dividend and are still able to acquire more dealers to sustain their growth initiatives. Between the increase in net income and increased share buybacks alone, there’s enough catalyst to justify my $100 price target. The following is simple arithmetic used to calculate Camping World’s potential returns with a reduced float and potential EPS expansion.

Target price of the CWH share

Excel

Source: Author’s calculation

Based on a worst-, mid-, and best-case scenario for Camping World net income in 2023, my base case has an upside potential of approximately 67%, my mid case offers 170%, and my best case offers me with a return of 256%.

valuation

Camping World Holdings is considered a deep value play in my opinion when comparing the company’s EV/EBITDA to its peers. Currently, Camping World has a lower EV/EBITDA than all of its closest competitors.

CWH share vs. Peers EV on EBITDA
Data from YCharts

In addition, Camping World has a higher return on assets than Seeking Alpha’s 5 closest competitors.

CWH stock 1 year chart

Alpha wanted

Source: Search for Alpha

The final consensus is that Camping World is heavily discounted, given the company’s low EV/EBITDA multiple and industry-standard returns on total assets.

Fed taper poses a risk to the camping world

Camping World is at risk from the Federal Reserve’s recent dovish tone, as higher interest rates could slow US economy spending. Back in December 2021, Federal Reserve Chair Jerome Powell said he expected an accelerated move toward tapering in 2022. If the Fed continues on its tightening agenda, I see it potentially giving Camping World’s new RV sales some headwind as higher interest rates and less fiscal stimulus lead to lower discretionary spending. That being said, this risk factor affects all recreational vehicle and cyclical growth stocks. Furthermore, given our current macroeconomic conditions, it remains highly questionable how much longer the Fed’s accommodative policy can be sustained. If you think cyclicals should make up a very insignificant portion of your portfolio given current market conditions, you might want to look beyond Camping World and find something else. Macroeconomic risks aside, Camping World seems to have a lot going for it as a company right now.

Final Thoughts

To conclude my optimistic thesis about Camping World Holdings, the company has the competitive advantage of being a one-stop shop for all your RV and outdoor needs. Additionally, the RV industry has an incredible perspective between remote work and alternative living. Finally, the new buyback program and monster yield offer reasonable rewards for shareholders to boost returns over the long term. I believe Camping World can double down on the investor principle if they are able to get in in the $30 to $40 range.

Leave a Comment