MasterCraft Gaps 12.5% Lower on Gloomy FY23 Outlook & NauticStar Sale

Investors of the Tennessee headquartered boat manufacturer, MasterCraft (US:MCFT) felt pain on Thursday after the group’s stock gapped -14% lower at the opening of trading before recovering marginally and closing -12.5% lower for the day. MCFT released both fourth quarter earnings to the market and the sale of its NauticStar business to Iconic Marine.

MasterCraft’s results seemed like a beat on the first look of the print, with the group posting adjusted earnings per share of $1.77, which came in 18% above analyst forecasts around $1.50.

MCFT generated $217.7 million in sales over the final quarter, which beat analyst forecasts that were around $195 million.

The manufacturer’s adjusted EBITDA rose 65.6% over the year to $44.6 million and beat analysts consensus by around 16%.

So why did the stock fall so much at the open?

Management’s outlook for the upcoming year spooked investors with conservative guidance figures.

Brightbill noted that “the potential for a weakening economy has caused us to approach our wholesale production plan for fiscal 2023 with a prudent level of conservatism”

MCFT expects to generate group net sales between $580-615 million for FY23, suggesting a 4-10% decline in revenue when compared to the $641.6 million generated in FY22 (ex-NauticStar).

On this level of revenue, management has guided to FY23 adjusted EBITDA between $105-115 million with Capex of about $30 million over the year.

For the first quarter, MasterCraft is forecasting net sales of around $165 million with adjusted EBITDA of ~$33.5 million and adjusted earnings per share of ~$1.30.

On the earnings call, management cited early FY23 trends as the reason that drove the conservatism.

A chart provided from the Fintel platform’s financial analysis shows the groups revenue and profits over the past ~5 years and helps illustrate share price and financial performance.

In addition to the group’s results, management announced the sale of its NauticStar segment business to Iconic Marine Group.

While the terms of the transaction were not disclosed yet to the market, MCFT’s CEO and Chairman Fred Brightbill commented on the transaction stating, “The sale of the NauticStar business to Iconic Marine Group will better position MasterCraft to drive profitable growth”.

Brightbill remained confident that the renewed focus on the groups remaining MaserCraft, Crest and Aviara brands will drive enhanced value for MCFT’s shareholders.

The NauticStar segment generated $66.3 million of the group’s $707.9 million of sales in FY22.

The transaction was completed on the 2nd of September.

Michael Swartz from Truist Securities responded to management’s disappointing FY23 outlook, stating that it would likely provoke concerns around the strength of the business and the trajectory of the marine industry in general. Regardless of the gloomy outlook, Swartz continues to believe MCFT can achieve the guidance targets and maintained his ‘hold’ recommendation and $22 price target.

Alternatively, Craig Kennison from Baird Equity Research maintained his ‘outperform’ recommendation on the stock while reducing the target price from $32 to $30. Kennison believes MCFT is an early-cycle stock, currently in a late-cycle market and patient investors will be rewarded in due time with the stock trading on a 6x PE Ratio. Craig also highlighted that MCFT has about ~$25 million left on an active share buyback program.

MCFT has a consensus ‘overweight’ rating and average price target of $32.40.

Fintel’s institutional ownership accumulation score of 75.33 is bullish on the company, as it ranks MCFT in the top 12.4% out of 36,426 screened securities. This scoring model  identifies companies with the highest levels of institutional accumulation.

Options sentiment across these institutions has swung from bearish to bullish over the years. The historical put/call ratio looks to have recently moved from bullish in late 2021 to bearish over the beginning of 2022.

This article originally appeared on Fintel

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