BUSINESS
Brunswick Corporation designs, manufactures, and markets recreation products worldwide. It operates through Propulsion; Parts & Accessories; and Boat segments. The Propulsion segment provides outboard, sterndrive, and inboard engines for independent boat builders and governments through marine dealers and distributors, specialty marine retailers, and marine service centers; and propulsion-related controls, rigging, and propellers to original equipment manufacturers and aftermarket retailers, distributors, and distribution businesses. This segment offers its products under the Mercury, Mercury MerCruiser, Mariner, Mercury Racing, and Mercury Diesel brands.
INVESTMENT RATING
Reflecting future returns on capital that are forecasted to be above the cost of capital, BC is expected to continue to be a major Value Builder.
Brunswick has a current Value Trend Rating of C (Low Neutral).
The Value Trend Rating reflects highly consistent signals from PTR’s two proprietary measures of a stock’s attractiveness. Brunswick has a neutral Appreciation Score of 43 and a neutral Power Rating of 53, leading to the Low Neutral Value Trend Rating.
Brunswick’s stock is selling below targeted value. The current stock price of $93.65 compares to targeted value 12 months forward of $107.
This neutral appreciation potential results in an appreciation score of 43 (57% of the universe has greater appreciation potential.)
Brunswick has a Power Rating of 53. (This neutral Power Rating indicates that BC’s chances of enjoying attractive investment performance over the near to intermediate term are only average.)
Contributing to this neutral Power Rating: recent price action has been favorable. Offsetting factors are the trend in BC’s earnings estimates has been unfavorable in recent months; and the Engines and Turbines comparison group is in an extremely unfavorable position currently.
INVESTMENT PROFILE
Brunswick’s financial strength is high. Financial strength rating is 75.
Relative to the S&P 500 Composite, Brunswick Corp has neutral Growth/Value characteristics; its appeal is likely to be to investors neutral towards Income; the perception is that BC is higher risk. All factors are relative weaknesses. Relative weaknesses for Brunswick include: high stock price volatility, and high earnings variability. Brunswick’s valuation is moderate: moderate dividend yield, low P/E ratio, and moderate price/book ratio. BC has unusually low market capitalization.
CURRENT SIGNALS
Brunswick’s current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; falling tax keep rate; and falling leverage.
Brunswick’s current technical position is very strong. The stock price is in a 1.9 month up move. The stock has appreciated 43.7% from its prior low. The stock price is above its 200 day moving average which is in an uptrend. The stock has just risen above its 200 day moving average.
ALERTS
Brunswick Corp (NYSE: BC) has recently enjoyed meaningful positive changes in investment behavior: the stock’s recent price rise disrupted its longer term downtrend.
Brunswick Corp (NYSE: BC) has recently enjoyed small positive changes in fundamentals: significant quarterly earnings acceleration occurred.
The stock is currently rated C.
Brunswick Corp (NYSE: BC) stock rose modestly by 0.4% on 4/9/24. The stock closed at $93.65. However, this advance was accompanied by unusually low trading volume at 64% of normal. The stock has been strong relative to the market over the last nine months but has declined -2.3% during the last week.
CASH FLOW
In 2023, Brunswick experienced a significant decline in cash of -$133 million (-22%). Sources of cash were lower than uses. Cash generated from 2023 EBITDA totaled +$1,075 million. Non-operating uses consumed -$58 million (-5% of EBITDA). Cash taxes consumed -$245 million (-23% of EBITDA). Re-investment in the business amounted to -$361 million (-34% of EBITDA). On a net basis, debt investors received -$157 million (-15% of EBITDA) while equity investors pulled out -$388 million (-36% of EBITDA).
Brunswick’s Non-operating Income, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by stability for the Brunswick Peer Group. In most years, Brunswick was in the lower quartile and third quartile. Currently, Brunswick is lower quartile at -5% of EBITDA (-$58 million).
Brunswick’s Cash Taxes, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Brunswick Peer Group. In most years, Brunswick was in the second quartile and top quartile. Currently, Brunswick is lower quartile at -23% of EBITDA (-$245 million).
Brunswick’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Brunswick Peer Group. (Since 2021 Business Re-investment, %EBITDA has experienced a very sharp recovery.) In most years, Brunswick was in the lower quartile and top quartile. Currently, Brunswick is slightly above median at -34% of EBITDA (-$361 million).
Brunswick’s Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by stability for the Brunswick Peer Group. (Since 2021 Debt Investors, %EBITDA has experienced a very sharp decline.) In most years, Brunswick was in the second quartile and top quartile. Currently, Brunswick is slightly above median at -15% of EBITDA (-$157 million).
Brunswick’s Equity Investors, %EBITDA has experienced a minor downtrend over the period. This downtrend was accompanied by an opposite trend for the Brunswick Peer Group. In most years, Brunswick was in the third quartile and lower quartile. Currently, Brunswick is lower quartile at -36% of EBITDA (-$388 million).
Brunswick’s Change in Cash, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by stability for the Brunswick Peer Group. In most years, Brunswick was in the lower quartile and top quartile. Currently, Brunswick is lower quartile at -12% of EBITDA (-$133 million).
Brunswick’s Cash, %Revenue has experienced a small downtrend over the period. This downtrend was accompanied by stability for the Brunswick Peer Group. In most years, Brunswick was in the second quartile and top quartile. Currently, Brunswick is slightly above median at +7%.
PROFITABILITY
Brunswick’s return on equity has improved very significantly since 2014. The current level of 20.7% is 1.25X the low for the period and is -16.5% from the high.
This very significant improvement was due to minor positive trend in pretax operating return supported by strong positive trend in non-operating factors.
The productivity of Brunswick’s assets declined over the full period 2014-2023: asset turnover has suffered a strong overall downtrend.
More than offsetting this trend, however, pretax margin enjoyed a volatile overall uptrend even as it experienced a very sharp decline after the 2021 high.
Non-operating factors (income taxes and financial leverage) had a significant positive influence on return on equity.
Brunswick’s return on equity is at median (20.7%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is at the lower quartile (10.1%) reflecting asset turnover that is lower quartile (1.03X) and at median pretax margin (9.8%).
Tax “keep” rate (income tax management) is lower quartile (68.8%) resulting in after tax return on assets that is at the lower quartile.
Financial leverage (leverage) is upper quartile (2.98X).
GROWTH RATES
There are no significant differences between Brunswick’s longer term growth and growth in recent years.
Brunswick’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been 8.6% per year.
Total asset growth has been 11.6% per year.
Annual E.P.S. growth has been 16.1% per year.
Equity growth has been 9.0% per year.
No consensus growth rate forecast is available for Brunswick.
Relative to the Brunswick Peer Group, Brunswick’s historical growth measures are generally second quartile. Revenue growth (8.6%) has been at the upper quartile. E.P.S. growth (16.1%) has been above median. Total asset growth (11.6%) has been at median. Equity growth (9.0%) has been at the lower quartile.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Brunswick’s stock price performance has been variable and in line with the market. Between June, 2013 and April, 2024, Brunswick’s stock price rose +193%; relative to the market, this was a -10% loss. Significant price move during the period: 1) March, 2020 – April, 2021: +203%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 2.0% is below median relative to the S&P 500 Composite.
In addition to being below median relative to S&P 500 Composite, current annual total return performance through February, 2024 of 2.0% is at the lower quartile relative to Brunswick Corp Peer Group.
Current 5-year total return performance of 12.6% is above median relative to the S&P 500 Composite.
Through February, 2024, with above median current 5-year total return of 12.6% relative to S&P 500 Composite, Brunswick’s total return performance is at median relative to Brunswick Corp Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, BC’s overall valuation is quite low. The highest factor, the price/equity ratio, is slightly below median. Ratio of enterprise value/assets is below median. Price/earnings ratio is lower quartile. Ratio of enterprise value/earnings before interest and taxes is lower quartile. The lowest factor, the ratio of enterprise value/revenue, is lower quartile.
Relative to Brunswick Peer Group, BC’s overall valuation is high. The highest factor, the ratio of enterprise value/revenue, is above median. Price/earnings ratio is above median. Price/equity ratio is at the upper quartile. Ratio of enterprise value/assets is at median. The lowest factor, the ratio of enterprise value/earnings before interest and taxes, is at median.
Brunswick has a major value gap compared to the median. For BC to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 1.40X to 1.00X. If BC’s ratio of enterprise value/revenue were to fall to 1.00X, its stock price would be lower by $-38 to $56.
For BC to achieve upper quartile valuation relative to the Brunswick Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 1.40X to 1.83X. If BC’s ratio of enterprise value/revenue were to rise to 1.83X, its stock price would increase by $41 from the current level of $94.
VALUE TARGETS
Reflecting future returns on capital that are forecasted to be above the cost of capital, BC is expected to continue to be a major Value Builder.
Brunswick’s current Price Target of $110 represents a +17% change from the current price of $93.65.
This neutral appreciation potential results in an appreciation score of 43 (57% of the universe has greater appreciation potential.)
Reinforcing this neutral Appreciation Score of 43, the neutral Power Rating of 53 contributes to an Value Trend Rating of C.
Brunswick’s current Price Target is $110 (-29% from the 2023 Target of $155 but +17% from the 04/09/24 price of $93.65). This dramatic fall in the Target is the result of a +6% increase in the equity base and a -33% decrease in the price/equity multiple. The forecasted decline in growth has a very large negative impact on the price/equity multiple and the forecasted decline in return on equity has a large negative impact as well. Partially offsetting these Drivers, the forecasted decline in cost of equity has a slight positive impact.
PTR’s return on equity forecast is 26.5% — below our recent forecasts. Forecasted return on equity enjoyed a dramatic, steady increase between 2015 and 2023. The current forecast is well above the 2015 low of 20%.
PTR’s growth forecast is 7.0% — below our recent forecasts. Forecasted growth exhibited a slight, erratic increase between 2015 and 2023. The current forecast is well below the 2016 peak of 12%.
PTR’s cost of equity forecast is 13.8% — in line with recent levels. Forecasted cost of equity suffered a dramatic, variable increase between 2015 and 2023. The current forecast is above the 2015 low of 9.9%.
At Brunswick’s current price of $93.65, investors are placing a positive value of $34 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 16.0% per year, and a return on equity of 28.4% versus a cost of equity of 14.6%.
PTR’s 2025 Price Target of $110 is based on these forecasts and reflects an estimated value of existing assets of $74 and a value of future investments of $35.
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