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Bottom of the Barrel: Coachmen RVs Are Ready to Ride

As America ages, Coachmen Industries (COA) is poised to get better with time.

The Elkhart, Ind.-manufacturer of recreational vehicles and modular housing is well positioned to benefit from the graying of America. Over the next three years, the population aged 55 and above -- the most important cohort to recreational vehicle manufacturers -- will grow by over 14%.

Coachmen's recreational vehicles are sold under brand names such as Coachmen, Shasta, Georgie Boy and Viking Recreational Vehicles. Product lines include Class A motor homes, Class C "mini" motor homes, travel trailers, fifth wheel trailers and folding camping trailers. In addition, the company also produces a number of accessory components for RVs.

The boost to the RV target market comes at a perfect time for Coachmen. After struggling with both design and execution over the last several years, the company is getting its act back together and taking it on the road. Coachmen's RV models underwent extensive redesign last year, and production is now catching up with renewed demand. In fact, sales began to pick up in the fourth quarter of last year and Coachman was able to increase production by 21% in the second quarter. Production should continue to increase through the balance of the year.

That helped the company turn recent losses into profits in the second quarter. Coachmen posted earnings of 22 cents per share in the June quarter and is now on track to earn between 65 cents to 75 cents for the year. In addition, sales have risen sequentially over the first two quarters of 2002 and are now trending higher year-over-year after two years of negative comparisons. In total, the company should post sales of $655 million this year and $725 million in 2003, up from $593 million in 2001.


At a Glance
Coachmen Industries (COA:NYSE)
Current Price $15.40
52-week Range $19.50 - $8.25
Price-Earnings Ratio* 30.2
Market Cap $248 million
Avg. Daily Volume 43
Inst. Ownership 73%
73% 1.65%
Beta 0.85
Company Web site www.coachmen.com
*Based on 2002 Estimates Source: Market Guide, FirstCall, Company Reports

Modular Challenges

The recreational vehicle business makes up nearly 60% of Coachmen's sales while modular building accounts for the other 40%. And although that business faces some short-term challenges, it is poised to provide good support for the company's longer-term growth.

In the June quarter, modular sales were down over 10% compared to 2001 levels, largely a result of anemic demand for the company's modular telecommunications buildings. And though there is little visible sign of recovery in demand from that key customer group, the company is beginning to see demand growth for its residential and other commercial products.

Coachmen has been striving to build scale in the business through acquisition. It recently acquired Mod-U-Kraft Homes and KanBuild, in the single-family modular business, and Miller Building Systems, a manufacturer of custom commercial modular buildings.

Building to the Future

Coachmen's balance sheet remains strong, carrying just 5% debt-to-equity. In addition, in a move attesting to its strong balance sheet, Coachmen recently increased its dividend by 20% -- to 6 cents from 5 cents -- and also announced plans to resume its stock repurchase plan. The company may repurchase up to 871,000 shares of common stock from the approximately 16 million currently outstanding.


Traveling North
Older and stronger Coachmen should grow
Year Sales (in millions) Earnings Per Share
2000 $710.0 $0.14
2001 593.9 (0.25)
2002* 655.0 0.55
2003* 725.0 0.85
* Estimates Source: FirstCall, Value Line, Company Reports, TSC Research

Coachmen's strategic plan to rebuild its recreational vehicle brand while expanding into modular buildings seems to be on track. Yet, investors continue to wait for signs of sustained demand and better economics for both businesses. Additional weakness in the economy could also pose challenges to both businesses.

However, with the potential for earnings growth in the 20% to 30% range in the next couple of years and a very solid dividend, Coachmen is a stock to watch. I give it two-and-a-half barrels.

Barrelology

The barrel portfolio made good strides last week in sync with market gains. It's important to remember that these stocks are small and volatile and will move both in tandem with the market but also have the potential to move sharply on specific company news. As such, a solid week (like the one just passed) can easily erase a really bad week like the one we saw two weeks ago -- that is a hallmark of micro- and small-cap investing.


A Bubbly Barrel
Small-caps perk up, but issues remain
Current Rating Company/Ticker Date of Mention Recent Price Mention Price* % Change From Mention % Change Last Week
Above Average Outlook
Superior (SUP:NYSE) July 10, 2002 $48.02 $43.87 9.46% 5.77%
Roadway (ROAD:Nadsaq) June 19, 2002 28.59 34.03 -15.99 -2.49
Fidelity National (LION:Nasdaq) May 8, 2002 10.10 10.58 -4.54 6.32
UCBH Holdings (UCBH:Nasdaq) March 27,2002 41.00 35.65 15.01 -2.57
Cost Plus World Markets (CPWM:Nasdaq) March 6, 2002 25.07 25.83 -2.94 11.32
Coastal Bancorp (CBSA:Nasdaq) Dec. 12, 2001 28.80 27.84 3.45 -0.76
Average Outlook
Champps Entertainment (CMPP:Nasdaq) May 29, 2002 $9.30 $13.01 -28.52% -5.58%
Trico Marine (TMAR:Nasdaq) May 1, 2002 4.09 8.25 -50.42 5.96
Rare Hospitality (RARE:Nasdaq) Feb. 20, 2002 27.42 25.72 6.61 6.94
NetBank (NTBK:Nasdaq) Feb. 6, 2002 10.73 13.45 -20.22 19.75
SurModics (SRDX:Nasdaq) Dec. 19, 2001 29.08 34.60 -15.95 0.52
VitalWorks (VWKS:Nasdaq)
Nov. 21, 2001 7.80 4.30 81.40 4.84
FPIC Insurance (FPIC:Nasdaq) Nov. 14, 2001 9.37 12.83 -26.97 5.76
Coinstar (CSTR:Nasdaq) Nov. 7, 2001 33.10 19.96 65.83 10.37
Witness Systems (WITS:Nasdaq) Oct. 31, 2001 4.72 8.06 -41.44 3.74
Hibbett Sports (HIBB:Nasdaq)** Oct. 24, 2001 18.30 20.04 -8.68 1.67
Quixote (QUIX:Nasdaq) Oct. 3, 2001 16.87 21.44 -21.32 5.44
Below Average Outlook
Innotrac (INOC:Nasdaq) June 12, 2002 $2.25 $4.79 -53.03% -2.17%
Wilsons Leather (WLSN:Nasdaq) May 22, 2002 9.50 14.96 -36.50 8.08
Arch Chemicals (ARJ:NYSE) April 24, 2002 20.98 22.52 -6.84 1.60
Hines Horticulture (HORT:Nasdaq) April 17, 2001 3.25 4.75 -31.58 3.17
Actrade (ACRT:Nasdaq) Jan. 30, 2002 2.12 20.65 -89.73 21.84
Endocare (ENDO:Nasdaq) Jan. 23, 2002 13.19 18.21 -27.57 -6.12
Quanta Systems (PWR:NYSE) Jan. 9, 2002 2.09 16.05 -86.98 10.00
Goody's Family Clothing (GDYS:Nasdaq) Nov. 28, 2001 4.93 4.50 9.56 5.12
Bridgford Foods (BRID:Nasdaq) Oct. 10, 2001 11.45 13.18 -13.13 -0.78
Bottom of the Barrel Income Portfolio
Hawaiian Electric (HE:NYSE) July 31, 2002 $44.89 $41.86 7.24% 1.72%
JDN Realty (JDN:NYSE) July 17, 2002 12.10 11.57 4.58 2.54
UGI Corp (UGI:NYSE) June 26, 2002 34.85 31.30 11.34 3.69
Acadia Realty (AKR:NYSE) June 5, 2002 7.78 7.03 10.67 -1.52
Capital Automotive REIT (CARS:Nasdaq) April 3, 2002 24.80 22.95 8.06 1.81
Laclede Group (LG:NYSE) March 20, 2002 24.80 23.64 4.91 6.62
Alexandria Real Estate (ARE:NYSE) Feb. 13, 2002 42.70 40.25 6.09 -0.14
Empire District Electric (EDE:NYSE) Jan. 16, 2002 18.90 21.23 -10.98 0.85
Integra Bancorp (IBNK:Nasdaq) Jan. 2, 2002 21.12 20.75 1.78 -0.61
Met-Pro (MPR:NYSE) Oct. 17, 2001 13.93 11.16 24.82 -1.21
Bottom of the Barrel Special Situation Portfolio
Key Production (KP:NYSE) Aug. 7, 2002 $19.98 $17.30 15.49% 9.24%
Luby's (LUB:NYSE) Feb. 27, 2002 5.48 6.22 -11.90 0.92
*Average price on date of mention.
** Prices adjusted for 3:2 split on Feb. 20, 2002
Source: Thomson Financial/First Call, TSC Research

A couple of specific comments:

  • Superior (SUP) continues to perform well. The stock trades at a premium to the auto supply group but continues to sport the best balance sheet and growth prospects.
  • Roadway (ROAD) continues to look inexpensive. Concerns about the anemic economic recovery continue to weigh on the stock but Roadway should recover as better economic news surfaces. It is among my favorite names in the portfolio.
  • Coinstar (CSTR) continues to impress. Yet, the solid gains posted since we profiled the stock in November shouldn't be ignored. I would be shy about taking profits.

    Our recent focus on small-cap dividends continues to make sense as the income portfolio continues to host the most consistent performers in the portfolio. Remember, the return numbers in the above table are only capital change and do not include dividends accumulated since the stocks were mentioned.

    Christopher S. Edmonds is vice president and director of research at Pritchard Capital Partners, a New Orleans energy investment firm. He is based in Atlanta. At time of publication, neither Edmonds nor his firm held positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send it to Chris Edmonds.
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