MarineMax has a strong M&A strategy and is expected to continue acquiring companies, which could lead to further FCF generation and net sales growth from 2024.
The company's digital platform improvements and retailing strategies, along with its focus on customer service and strategic locations, make it an attractive investment.
Despite risks such as dependency on a few manufacturers and revenue concentration in Florida, MarineMax's stock appears undervalued, trading at less than 4x FCF.
MarineMax ( HZO ) continues to deliver M&A transactions like that of C&C Boat , which, in my view, will likely bring further FCF generation. I believe that further inorganic growth, improvements from the digital platform thanks to the acquisition of Boatyard, and retailing strategies are worth considering. Even taking into account the total amount of debt and dependency on several manufacturers, I do not see why the company trades at less than 4x FCF. In my view, the stock is clearly undervalued.
MarineMax
MarineMax is the world's leading retailer of new and used yachts and recreational boats as well as related marine products and services. With more than 120 locations around the world, including retail dealerships and marinas, MarineMax offers a wide range of options to its customers.
Through its subsidiaries Fraser Yachts and Northrop & Johnson, the company is recognized as a leading provider of superyacht services globally. In addition, MarineMax manufactures and sells boats and yachts through its Cruisers Yachts subsidiary and powerboats under the Intrepid Powerboats brand. The company also offers financial services, insurance, and yacht charter among others.
MarineMax focuses on premium brands and has a strong partnership with Brunswick, a leading manufacturer in the marine industry. In addition to Brunswick's Sea Ray, Boston Whaler, and Harris Pontoons brands, MarineMax also sells luxury yachts and other types of boats from manufacturers such as Azimut. In sum, I think that MarineMax is distinguished by its focus on customer service and its presence at strategic locations around the world. I believe that the most exciting thing about MarineMax is its intensive M&A strategy. The total amount of goodwill increased from close to zero in 2004 to more than $230 million. As a result of the inorganic growth, revenue increased from less than $599 million to more than $2.3 billion.
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I cannot really detail all the information about previous acquisitions, however, I believe that investors may enjoy having a look at the list of acquisitions and their locations. The fact that the company is acquiring targets in Florida but also outside the United States is promising. It means that management is ready to develop its international connections, which could, in my view, be an interesting revenue catalyst .
10-K
Having a look at the numbers in the acquisition of IGY Marinas is also beneficial. MarineMax bought this company using close to $551 million, obtaining a lot of property and equipment, negative working capital, and about $293 million in goodwill. IGY Marinas was bought for about 2x the total property and equipment.
10-K
MarineMax currently trades at less than 1x-1.7x its property and equipment, so I would say that MarineMax is a bit undervalued as compared to previous acquisitions made by management.
YCharts
The Balance Sheet Shows An Impressive Increase In The Total Amount Of Assets Driven By M&A Transactions
Through strategic acquisitions including Fraser Yachts Group, Northrop & Johnson, SkipperBud's, Cruisers Yachts, and IGY Marinas, MarineMax has strengthened its offering of superyacht brokerage, luxury yachts, and marina/storage services.
In the last quarterly report, the ratio of total liabilities/total assets increased, which is not ideal. With that, I believe the recent acquisitions brought many new assets that investors may appreciate. The new assets acquired from IGY Marinas include a global network of marinas in the Americas, the Caribbean, and Europe, delivering year-round accommodations. Besides, the acquisition of Boatzon brought intangible assets related to a marine digital retail platform. More assets will likely lead to more revenue growth potential and FCF margin increase from synergies.
In October 2022, we completed the acquisition of IGY Marinas. In January 2023, we acquired Boatzon, a boat and marine digital retail platform, through our recently formed technology entity, New Wave Innovations. Source: 10-Q
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As of March 31, 2023, the company reported cash and cash equivalents worth $204 million, accounts receivable of around $116 million, and inventories of $711 million. Total current assets are close to $1.054 billion, which are larger than the current amount of liabilities.
Property and equipment stood at $499 million, which is significantly higher than what the company reported in September 2022. Goodwill also stood at $558 million, close to two times the amount reported in September 2022. Finally, total assets were equal to $2.324 billion, a bit more than 1x the total amount of liabilities.
10-Q
In the last 10-Q, the total amount of long-term debt increased quite a bit. I hope that management reduces the debt levels when new acquisitions bring free cash flow.
The list of liabilities includes accounts payable worth $44 million, contract liabilities of around $113 million, accrued expenses close to $113 million, and short-term borrowings of $498 million.
Long-term debt stood at $407 million, with noncurrent operating lease liabilities worth $121 million and deferred tax liabilities close to $47 million. In sum, total liabilities are equal to $1.473 billion.
10-Q
My DCF Model: M&As Are Expected To Continue, And Improvements From The Digital Platform And Retailing Strategies Could Bring Net Sales Growth In 2024
I believe that we can expect MarineMax to continue to acquire other companies. I think that the balance sheet would most likely allow new acquisitions. It is also worth noting that MarineMax noted in the last 10-Q that acquisitions will likely continue.
Acquisitions remain an important strategy for us, and, subject to a number of conditions, including macro-economic conditions and finding attractive acquisition targets, we plan to explore opportunities through this strategy. Source: 10-Q
In my opinion, investors could expect a lot from the digital platform and the retailing strategies that MarineMax may implement in the future. In this regard, investors may be willing to investigate Boatyard , a customer experience company that may offer significant support to MarineMax.
We also own Boatyard, an industry-leading customer experience digital product company. Source: 10-Q
Boatyard
In the last quarterly report, management noted a decrease in new boat revenue and used boat revenue due to lower demand. I would be expecting a further decrease in demand in 2023, but a rebound in economic activity from 2024 and 2025. Other analysts are also expecting an increase in net sales in 2024.
The comparable-store decrease came primarily from decreases in new boat revenue and used boat revenue due to softer demand, more seasonal sales trends, and macroeconomic uncertainty. Source: 10-Q
marketscreener.com
I also expect that MarineMax will likely seek to expand geographically and broaden its range of products and services in new jurisdictions. With a proven business model in the United States, I believe that new regions will likely bring revenue growth up.
My DCF model includes 2033 net income close to $204 million, depreciation and amortization of around $56 million, and stock-based compensation expense of $66 million.
Also, with changes in accounts receivable of -$15 million, changes in inventories of around $45 million, and changes in prepaid expenses and other assets of -$14 million, I included changes in accounts payable worth $165 million.
Besides, with changes in contract liabilities of $47 million, 2033 net cash provided by operating activities would stand at $521 million. Now, if we subtract purchases of property and equipment of around -$328 million, 2033 FCF would be close to $193 million.
Work From The Author
Considering the EV/FCF 5 years median of 3.4x, I obtained 2033 terminal FCF of $658 million. Additionally, with a WACC of 9.7%, the implied enterprise value would be $1.071 billion.
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Adding cash and cash equivalents worth $228 million, and subtracting short-term borrowings of $132 million, current maturities on long-term debt close to $2 million, and long-term debt of $45 million, the equity would be $1.119 billion. In sum, the implied valuation would be $21 per share with an IRR of 4.33%.
Work From The Author
Risks From Concentration Of Boat Manufacturers Or Changing Economic Conditions In Florida
From my point of view, MarineMax faces several risks that shareholders may be happy to know. It is worth noting that a substantial part of the revenue from MarineMax comes from boats manufactured by a few providers. If these manufacturers try to renegotiate the conditions with MarineMax, management may suffer an increase in expenses or costs, which may lead to lower FCF margins.
Approximately 23% of our revenue in fiscal 2022 resulted from sales of new boats manufactured by Brunswick, including approximately 11% from Brunswick's Sea Ray division, 9% from Brunswick's Boston Whaler division, and approximately 3% from Brunswick's other divisions. Additionally, approximately 8% of our revenue in fiscal 2022 resulted from sales of new boats manufactured by Azimut-Benetti Group. Source: 10-K
I also believe that operational risks, such as supply issues, supply chain disruptions, product quality failures, or changing spending patterns, are also important risks. In particular, the company receives a significant amount of revenue from Florida, so any issue related to dealership revenue in this area could cause major damage to the income statement. The following words have been taken from the quarterly report.
Economic conditions in areas in which we operate dealerships, particularly Florida in which we generated approximately 54%, 50% and 51% of our dealership revenue during fiscal 2020, 2021, and 2022, respectively, can have a major impact on our operations. Source: 10-Q
External factors, such as adverse weather conditions and natural disasters, can also negatively impact operations. MarineMax recognizes these risks and takes steps to manage and mitigate them to the extent possible. Previous examples are Hurricanes Harvey and Irma in 2017, Hurricane Ian in 2022, and the BP ( BP ) oil spill in the Gulf of Mexico in 2010.
Local influences, such as corporate downsizing, military base closings, inclement weather such as Hurricanes Harvey and Irma in 2017 and Hurricane Ian in 2022, environmental conditions, and specific events, such as the BP oil spill in the Gulf of Mexico in 2010, also could adversely affect, and in certain instances have adversely affected, our operations in certain markets. Source: 10-Q
Competitors
MarineMax finds itself in a highly competitive environment, in the recreational boating industry and the general entertainment and discretionary spending market. Competition comes from a wide range of businesses, including single-location boat dealers, specialty marine parts and accessories stores, online retailers, sporting goods stores, and large national or regional chains.
Key competitive factors include product quality, price, value offered, and customer service. In addition, the availability of storage spaces can influence competition in certain markets.
According to Craft , MarineMax competes with OneWater (ONEW), West Marine, and MasterCraft (MCFT). Taking a look at the EV/FCF of peers, in my view, MarineMax is a bit undervalued at 3x FCF.
Craft.co
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Conclusion
MarineMax has proven to be a leader in the recreational boating industry, with a solid strategy and a focus on product quality and customer service. Its expansion through strategic acquisitions has strengthened its position as the leading retailer of yachts. Taking into account these details and the improvements from the digital platform, retailing strategies, and likely new M&A ventures, I believe that net sales may trend north from 2024. In any case, I think that the current valuation is less than 4x forward FCF, which, I believe, is cheap. Even the potential risks from the total amount of debt, dependency on several manufacturers, or revenue concentration from Florida are not that relevant, in my view.
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MarineMax, Inc. (NYSE: HZO) is one of today's top gainers. The company's shares have moved 25.56% on the day to $35.77. MarineMax, Inc. operates as a recreational boat and yacht retailer and superyacht services company in the United States. It operates through two segments, Retail Operations a...
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