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LCI Industries (LCII) and Fonar Corporation (FONR) - Wall Street’s Best Digest Daily Alert - 4/29/21

Our first idea is an automotive component company that is forecasted to grow at a 20% annual rate over the next five years, and has a current annual dividend yield of 2.04%, paid quarterly. Our second recommendation is a sale of a previous pick.

Our first idea is an automotive component company that is forecasted to grow at a 20% annual rate over the next five years, and has a current annual dividend yield of 2.04%, paid quarterly. Our second recommendation is a sale of a previous pick.

LCI Industries (LCII)
From SmallCap Informer

We have been following LCI Industries since the August 2015 issue of the SmallCap Informer when the company was known as Drew Industries. We re-recommended the stock in April 2017 after the name change to LCI Industries (taken from the name of its main business unit, Lippert Components). Both recommendations have worked out reasonably well, with the stock returning nearly 240% with dividends since our first buy, and almost 48% since our second.

After a banner year due to the pandemic-induced boom in RV sales, LCI Industries is back on our radar with an attractive valuation and positive outlook. LCI Industries is a market leading maker of components used in recreational vehicles, buses, trailers, trucks, boats, trains, and manufactured housing. LCI makes all kinds of products, including windows, axles, showers and sinks, awnings, electronics, and chassis. Each new towable RV sold in the U.S. has an average of $3,390 of LCI content, while each new motorhome RV has $2,479 in LCI components on average. These numbers have increased nearly every year since 2012.

The company serves markets in North America and Europe, but is executing on a strategy to expand its sales in its Europe, International, aftermarket, and adjacent industries and thus reduce the cyclical impact of the North American RV industry. To that end, it has been acquiring businesses outside the U.S. and in its non-RV-related products, making more than 50 acquisitions in the last 20 years, most focused outside of North America.

Since 2011, LCI’s sales have grown 17.0% a year on average and at a high level of consistency. EPS have grown 20.3% a year in the decade, though the growth rate slowed after a margin jump and EPS spurt in 2016. For the fourth quarter ending December 31, 2020, sales grew 38.8% to $783.0 million, and EPS grew 68.4% to $1.92.

For the full year 2020, sales were up 17.9% year compared to fiscal 2019, while EPS grew 31.1% year-over-year. These gains were largely due to increased industrywide demand for RV shipments as consumers sought alternatives for vacation and travel. Total wholesale RV shipments in 2020 were the fourth highest on record.

In mid-April, management pre-announced sales for the company’s Q1 ended March 31, 2021, reporting sales would exceed $1.0 billion, up more than 50% over Q1 2020. The estimated EPS are up more than 90% from the prior year quarter.

Many trends bode well for LCI Industries. Studies show an ever-increasing desire for outdoor activities, and new peer-to-peer RV rental companies (think AirBNB for RVs) are creating new opportunities for consumers to try RVing. Millennials are making up a larger and larger percentage of campers. Many people are unaware that the outdoor recreation industry makes up 22% of GDP in the U,S., more than agriculture, mining, and utilities. Increased retail demand also means that future aftermarket parts demand will be high as units enter replacement and upgrade cycles.

Analysts who follow LCI Industries are seeking 20% annual EPS growth on average in the next half-decade. We are conservatively projecting revenues to grow 12% annually, with EPS growing at 15.2% driven by an increase in margins.

After marking 2016 and 2017 as outliers, LCI Industries’ pre-tax profit has been trending along at a very steady pace around 8.0% for the remainder of the decade, ending 2020 at 7.5%. We see the company’s margins returning to the 9.0% level as they increase aftermarket product sales with their higher margins. These are very respectable levels within the RV industry. Return on equity has been declining slightly, but ended 2020 at a respectable 20.2%. Long-term debt-to-equity jumped in 2019 as the company took advantage of acquisition opportunities, and remained high in 2020 as the company borrowed to maintain liquidity in the unknown COVID-19 environment. Debt-to-equity reached 91.4% at year-end 2020. Total debt-to-capital is also heavy at 49.1%, Management says that its target net debt/EBITDA ratio is 1.0x to 1.5x, and it was 2.14x at fiscal year-end. Reducing leverage is one of its top priorities for cash.

The company’s stock trades at a current P/E of 19.1, below its adjusted average P/E of 16.3. At a future high P/E ratio of 22.1 and future EPS of $14.81, the stock could reach $327 from the recent price of $139.57. On the downside, a 25% price decline take the stock to $105. From the current price, the reward/risk ratio is 5.4:1, and a potential annual total return of 20.5% is possible.

Doug Gerlach,, 1-877-33-ICLUB, May 2021

Sell: Fonar Corporation (FONR)
From SmallCap Informer
Updated from WSBD 822, October 16, 2019

We never expected slow-grower Fonar Corp. to set records for its pace of growth, but did think that its careful approach to expansion would bring rewards over. Unfortunately, the company’s recent string of mixed financial results and concurrent weak quarters has caused the market to lose confidence in the company and its technical base to weaken considerably. With nothing on the horizon to indicate that fundamentals might soon return to form, and while the rest of the small-cap segment is having a banner year-to-date, there are many better uses for funds than owning Fonar at this point. As such, we conclude that it’s time to discontinue coverage of Fonar Corp.

Doug Gerlach,, 1-877-33-ICLUB, May 2021