ONEW - Lazydays Holdings: Action Call

2023-12-13 04:30:46 ET

Summary

• Lazydays Holdings operates RV dealerships in the US, offering sales, repair services, financing, and camping facilities.
• Surveys show increased planned travel in 2023 and 2024, with RV camping popularity on the rise.
• Despite the Q3 earnings decline, LAZY is making acquisitions and partnerships to strengthen revenue prospects and is undervalued compared to peers.

Company Overview

Lazydays Holdings ( LAZY ) operates recreational vehicle (RV) dealerships under the Lazydays name in the United States. The Company provides RV sales, RV repair and services, financing and insurance products, third-party protection plans, after-market parts and accessories, and RV camping facilities. The Company was founded in 1976 and is based in Tampa, Florida. As a result of Americans' increased planned travel in 2023 and 2024, increasing hotel room rates in 2024, RV camping popularity among new and current campers, and declining oil prices, we believe LAZY offers an attractive investment opportunity.

Investment Thesis

According to a Forbes Advisor survey of 1,000 Americans, 49% of the respondents plan to travel more in 2023, while 38% plan to travel about the same as in 2022.

Similarly, according to a survey by VacationRenter , 54% of Americans say they plan to travel more in 2024 than they did in 2023.

According to Hotel Monitor 2024 , a forecast from American Express Global Business Travel, North American hotel room rates are expected to increase on a percentage basis in the high single digits to low double digits.

In the dyrt's 2023 Camping Report, more than half of Americans that camp do so in a vehicle, with an RV being the most popular camping vehicle. Thirty-five million out of the 80 million total campers in the U.S. camped in an RV in 2023.

The price of WTI crude oil is down 32% from its high on June 6th, 2022.

In their Q3 earnings report, LAZY faced headwinds but is making partnerships and acquisitions to strengthen topline prospects once conditions improve. Revenue decreased 16% to $280.7 million. Adjusted third-quarter net loss per share was $(0.29) or $(2.9) million versus net income of $0.54 per share or $14.4 million in the prior year's period. LAZY acquired Buddy Gregg Motorhomes in Knoxville, Tennessee, and Century RV in Longmont, Colorado, while opening their Wilmington, Ohio, greenfield location. Management expects these three locations to add $125 million in annual revenues in their steady states.

Additionally, LAZY generated sequential quarterly sales increases for three straight quarters, starting in Q4:22 until Q3:23. Sales growth can be lumpy with big-ticket purchases like RVs. Given the macro trends, we see sales growth continuing in the coming quarters.

Risks

• Hotel prices decline, leading to less demand for RV camping.
• Oil prices increase, leading to less RV travel.
• The demand for camping loses its allure.
• As of LAZY's most recent quarterly, the Company had over $500 million in debt. A closer look reveals the debt might not be as cumbersome as it seems. First, there is $334 million in floor plan notes, which is used to fund inventory. This is a common practice for big-ticket retailers like LAZY. The floor plan debt is repaid with each sale. Second, $92 million of the debt is finance lease liabilities accounted for as debt. Lastly, the remaining long-term debt is collateralized by owned real estate. The floor plan debt could become an issue if LAZY is not able to sell inventory at a regular pace.

Valuation

We have provided an analysis of LAZY's common stock to show how it is undervalued relative to its peers, as seen in the table below, which compares the Company to its peer average P/B and P/S ratios. The peer group includes Camping World ( CWH ), Patrick Industries ( PATK ), LCI Industries ( LCII ), Malibu Boats ( MBUU ), MasterCraft ( MCFT ), OneWater Marine ( ONEW ), and MarineMax ( HZO ).

Over the next twelve months, it is reasonable to assume (barring any sudden shocks to the economy) that Americans will continue to travel/camp as consumer spending strengthens, inflation subsides, interest rates eventually level off and/or decline, and oil prices decline thus increasing LAZY's valuation multiples. We believe continued sales growth in the coming quarters can help LAZY's multiple expand toward the peer group average.

If we assume LAZY's Price-to-Book ratio expands to just 12.5 percent of its peer group average, we forecast a price of $7.65, and if we assume LAZY's Price-to-Sales ratio expands to just 25 percent of its peer group average, we forecast a price of $8.51. The average of these two price targets is $8.08, which we round down to $8.00, 35% higher than LAZY's closing price of $5.92 on November 21, 2023.

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