Brunswick: Launching Coverage With a Narrow Moat Rating and $118 Fair Value Estimate

We are initiating coverage of Brunswick with a $118 fair value estimate and view shares as attractive. While share have risen 18% year to date through Aug. 9, they have largely traded sideways over the last six months, which we believe is a result of investor concern around consumer health. Our valuation considers both Brunswick's financial projections and our internal outlook for recreational products. Brunswick has fiscal 2025 goals of $10 billion in sales, a 17% operating margin, and $16.00-$17.50 in EPS. We forecast sales of $7.3 billion, a 14% operating margin, and EPS of $11.08 in fiscal 2025 given our more tepid industry growth prognosis. While demand for outdoor recreational products rose significantly due to social distancing measures during the pandemic, we expect category retail sales to moderate over the next few years (to 2%) as consumers reallocate spending to other categories. Still, we think Brunswick should take share, with firmwide sales set to grow 3% on average over the next decade, including acquisitions.