The Bull Case:

Thor has tons of stuff going for it.  Let’s list them out:

1. Retirees.  Lots of them.  When we think about retirees, we have a tendency to picture the hot silver haired couple sitting on the beach as pitched by all those Fidelity ads.  The reality is likely a lot more pedestrian.  Middle class grandmothers and grandfathers retiring in droves.  Many will aspire to travel the country first, before traveling the world, and will want to purchase an RV to do so.  They may even stop in and see the kids.
2. Thor has no long term debt.
3. Product line.  Thor has a more diversified product line than many RV manufacturers.  About 18% of their sales come from Motor Coaches (the large bus like drivable RVs) another 15% comes from the bus division.  The remainder comes from towable RVs.  In the era of high gas prices, I feel that the towable segment will become much more attractive as they provide better gas mileage and increased flexibility.
4. The bus segment has a tendency to be counter cyclical to the RV segment.  Bus sales have been growing nicely – up 3% in the last 9 months compared to last year.
5. Currently, Thor has $119 million in cash (don’t forget the $127 million in ARS – they’ll get that back sometime).  Did I mention they have NO debt?  The risk of bankruptcy is very low (something that other more leveraged RV makers probably cannot claim).
6. According to the proxy, salaries are modest.  Incentives are based on cash bonus programs.  There are no ongoing stock incentive programs, although the Board Of Directors indicates that they can be used to attract and maintain talent as needed.

 
Valuation:

Thor sports some pretty impressive returns.  The trailing 5 year average for ROIC (return on invested capital) is 22% (which is very close to the return on equity, because, did I mention, they have no long term debt?).  Additionally, for the last 10 yrs, Thor has grown its EPS by over 25% per year.

Given that the company is significantly cash flow positive, I used a discounted cash flow analysis.  Using a cash flow per share of $2, which is lower than their current $2.40 - giving a nod to the fact that things might well get worse before they get better - and a growth rate of 15% (discount rate of 15% for those that are interested), I calculate an intrinsic value of $35 v. a current share price of $27:  a margin of safety of 23%.

These are also very conservative assumptions considering the past growth rates.  Also, as little as one year ago, Thor generated about $3.25 in free cash flow per share.

Conclusion:

I think that Thor has been beaten down significantly below its intrinsic value.  The foggy consumer environment and high gas prices have made this an unpopular company.  I could see the price dipping again if the short term environment remains challenging.  However, there is very little chance that Thor will not survive the current market difficulty.  They may even be able to steal market share from competitors that are in much worse financial condition.  When the current consumer difficulties are behind us, whether that is one year or five, Thor will still be there poised to take advantage of the powerful demographic forces that are coming.

Let me know what you think of Thor!