Boating saw huge demand last year as people sought outdoor recreation that maintained a degree of safety in the wake of the pandemic lockdown period. The industry is still witnessing a huge demand. In fact, the recreational boats market is poised to grow at a CAGR of 7.8% over the next seven years to reach $54.9 billion by 2027.

According to the National Marine Manufacturers Association (NMMA), retail unit sales of new powerboats in the United States increased by 12% year-over-year in 2020, hitting a 13-year high. Brunswick Corporation (BC) and Malibu Boats, Inc. (MBUU), two leading players in this space, have been capitalizing on the industry tailwinds. They have been focusing on advanced driver assistance using technology and autonomous solutions to improve their customers’ boating experience.

Both stocks have generated healthy returns over the past three years. While BC returned 70.6% over this period, MBUU surged 137.6%. In terms of their past six-months’ performance, BC’s 58.7% makes it a clear winner versus MBUU’s 16.9% gain. But, which of these stocks is a better pick now? Let’s find out.

Note that BC is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.

Latest Movements

On April 14,  BC partnered up Carnegie Robotics LLC (CRL), a leading provider of advanced robotics, sensors and autonomous solutions, to create advanced driver assistance and autonomous solutions for improving the boating experience across a range of applications and scenarios. Also this month, BC  established its popular division, Freedom Boat Club, in Wisconsin, and two more clubs in Chicago. BC has also recently expanded its i-Jet Innovation Lab at the University of Illinois to accelerate its ACES (Autonomy, Connectivity and Electrification) strategy and vision for enhancing the recreational boating experience. Freedom Boat Club recently acquired a New York and Chicago franchise operation and territory recently.

In January,  MBUU achieved more than five million safe man hours at its Loudon, Tennessee facility absent any lost time injury incident. Also in January, MBUU closed its  acquisition of Maverick Boat Group, Inc.  The company’s Malibu segment and Saltwater Fishing segment had witnessed increased net sales last year due to strong demand for their new, larger boat models and optional features.

Recent Financial Results

BC is scheduled to release its fiscal 2021 first quarter financial results on April 29 before the market opens. BC’s net sales for the fourth quarter, ended December 31, 2020, increased 26.5% year-over-year to $1.16 billion. Its net sales from the propulsion segment came in at $507.90 million, up 32.9% year-over-year. Its adjusted gross margin increased 39.8% year-over-year to $336.30 million. And its adjusted operating earnings came in at $145.6 million, which represented a 59.1% year-over-year rise. BC’s adjusted pretax earnings has increased 66.1% year-over-year to $975 million. Its adjusted EPS also increased 61% from the prior-year period to $1.32.

MBUU is scheduled to release its fiscal 2021 third quarter financial results on May 4 before the market opens. For its second quarter, ended December 31, 2020, MBUU’s net sales rose 8.6% year-over-year to $195.65 million. Its gross profit increased 24.1% year-over-year to $49.49 million. MBUU’s operating income was  $28.93 million for the quarter, up 22.6% from the year-ago period. Its adjusted net income increased 31.6% year-over-year to $26.45 million. And its adjusted EPS increased 31.2% year-over-year to $1.22.

Past and Expected Financial Performance

BC’s EBITDA and EPS grew at CAGRs of 14.4% and 61.3%, respectively, over the past three years. The CAGR of the company’s free cash flow has been 120.8% over the past three years.

Analysts expect BC’s revenue to grow 32.3% in the current quarter (ending June 30, 2021), 16.2% in the current year, and 5.6% next year. Its EPS is expected to increase 77.8% in the current quarter, 26.4% in the current year and 11.5% next year. BC’s EPS is expected to grow at a rate of 15% per annum over the next five years.

In comparison, MBUU’s EBITDA and EPS grew at CAGRs of 21.8% and 55.7%, respectively, over the past three years. The CAGR of the company’s free cash flow has been 24.2% over the past three years.

Analysts expect MBUU’s revenue to increase 122.9% in the quarter ending June 30, 2021, 37.3% in the current year and 17.9% next year. However, its EPS is expected to rise325% in the current quarter, 74.2% in the current year and 15.9% next year. Furthermore, its EPS is expected to grow at a rate of 15% per annum over the next five years.

Profitability

BC’s trailing-12-month revenue is more than 541 times  MBUU’s. Also, BC looks more profitable, with a gross profit margin of 28.6% versus MBUU’s 24.7%.

BC’s $798.0 million of cash from operations compares favorably with MBUU’s $114.23 million.

Valuation

In terms of forward EV/sales, MBUU is currently trading at 2.12x, 26.9% higher than BC, which is currently trading at 1.67x. Also, in terms of forward trailing-12-month non-GAAP P/E, MBUU’s 21.46x is 6% higher than BC’s 20.25x.

MBUU’s trailing-12-month price/cash flow of 15.13x is significantly higher than BC’s 10.03x.

Thus, BC is the more affordable stock.

POWR Ratings

While MBUU has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system, BC has an overall B rating, which equates to a Buy.

Both BC and MBBU have a Momentum Grade of B due to  their impressive price gains over the past year, and a Growth Grade of C, in sync with analysts’ expectations that their EPS will increase at a modest rate.

However, in terms of Quality Grade, BC has been graded an A, which is consistent with its significantly higher-than-industry profitability ratios. In comparison, MBUU has a Quality Grade of C because  its trailing-12-month cash from operations is lower than the industry average.

Of 33 stocks in the A-rated Athletics & Recreation industry, BC is ranked #6, while MBUU is ranked #32.

Beyond what we’ve stated above, our POWR Ratings system has also rated both BC and MBUU for Value, Sentiment and Stability. Get all BC ratings here. Also, click here to see the additional POWR Ratings for MBUU.

The Winner

We believe that BC and MBUU are well-positioned to generate significant revenues in the coming months, given their efforts to increase safety and customer satisfaction and a rising demand for boating in the recreational industry. However, BC appears to be a better buy based on the factors discussed here.

BC has been expanding its geographical footprint and undertaking strategic investments to increase its market share. The stock is expected to keep strengthening its market position in the coming quarters.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Athletics & Recreation industry.

BC shares were trading at $105.07 per share on Friday afternoon, up $2.40 (+2.34%). Year-to-date, BC has gained 38.22%, versus a 11.97% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...

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