Company Reports

Malibu is a long-established name in performance sport boats, venturing into the sterndrive and saltwater segments via acquisitions in recent years. We believe that its brand, innovative products, and consistent pricing power contribute to a brand intangible asset, which underpins our narrow moat rating. Supporting its market leadership, it’s demonstrated an ability to meet evolving customer preferences, bringing new products to market quickly, with new models and numerous new features rolled out annually across all of its segments. And it has capitalized on its brand strength by expanding into adjacent categories, such as trailers and accessories, which we expect to continue. However, Malibu hasn’t rested only on innovation to grow profits, also curating savings through streamlined production and rising efficiencies through vertical integration. As evidence, efforts at Pursuit’s new plant had increased the EBT margin at the brand to 13% in 2023 (from 9% in 2020), even with the acquisition of Maverick. With continuous improvements to the manufacturing process, Malibu should be able to limit expense growth over time.

Echoing similar sentiment to the other discretionary manufacturers on our coverage list, narrow-moat Malibu continues to see a hesitant consumer purchase boats cautiously, held back by higher loan expense and worry around economic malaise. In turn, this has hindered dealer ability to absorb more units from manufacturers, adding to caution around higher floorplan financing costs. As a result of this throughput chokehold, Malibu delivered third-quarter sales that contracted 46%, with volumes lower by 52% and average selling prices up 13% (helped by mix). Although adjusted EBITDA margin of 12% was better than our 10% estimate, it was still more than 900 basis points lower than last year, as cost absorption was nonexistent—gross margin declined by 645 basis points (19.8%) and operating expense margin rose by 565 basis points (13.2%). Weak performance is industrywide, rather than idiosyncratic, and we think most manufacturers are prudently ratcheting back shipments to ensure the dealer base isn’t inundated with stale inventory as they move into the next model year.

On Feb. 20, narrow-moat Malibu revealed that CEO Jack Springer is scheduled to resign from his position and the board by May 17. As such, plans are underway to search for his successor. We believe Springer, at the helm since 2010, has been instrumental in the firm’s success, steering it through a successful IPO in 2014 and pursuing strategic acquisitions to broaden its market presence and fortify its brand. Shares tumbled around 10% on the news, as investors contemplate another replacement in the C-suite after former CFO Wayne Wilson departed in May 2023.

Malibu is a long-established name in performance sport boats, venturing into the sterndrive and saltwater segments via acquisitions in recent years. We believe that its brand, innovative products, and consistent pricing power contribute to a brand intangible asset, which underpins our narrow moat rating. Supporting its market leadership, it’s demonstrated an ability to meet evolving customer preferences, bringing new products to market quickly, with new models and numerous new features rolled out annually across all of its segments. And it has capitalized on its brand strength by expanding into adjacent categories, such as trailers and accessories, which we expect to continue. However, Malibu hasn’t rested only on innovation to grow profits, also curating savings through streamlined production and rising efficiencies through vertical integration. As evidence, efforts at Pursuit’s new plant had increased the EBT margin at the brand to 13% in 2022 (from 9% in 2020), even with the acquisition of Maverick. With continuous improvements to the manufacturing process, Malibu should be able to limit expense growth over time.

Narrow-moat Malibu is facing its most compressed EBITDA margin profile in more than a decade. Although the firm’s second fiscal quarter results were near expectations, with sales down 38% and an adjusted EBITDA margin of 10.9% (down roughly 600 basis points), it took a haircut to its full-year outlook, sending shares tumbling at a midteens rate. Fiscal 2024 sales are now expected to fall at a mid- to high-30% rate, rather than the high-teens to low-20% path, while EBITDA is set to contract 800-900 basis points (to around 12%), versus 350-450 basis points prior. While the firm has historically displayed operational flexibility to protect margins, the inability to maneuver operating expenses in the near term was a function of the magnitude and rapid onset of the demand downdraft, resulting in a downsizing of inventory in the dealer channel that is likely to take the rest of the fiscal year. This is the culprit in the 25% reduction in our $81 fair value estimate. Even with a lower fair value, shares appear attractive, although admittedly come with near-term risk.

Malibu is a long-established name in performance sport boats, venturing into the sterndrive and saltwater segments via acquisitions in recent years. We believe that its brand, innovative products, and consistent pricing power contribute to a brand intangible asset, which underpins our narrow moat rating. Supporting its market leadership, it’s demonstrated an ability to meet evolving customer preferences, bringing new products to market quickly, with new models and numerous new features rolled out annually across all of its segments. And it has capitalized on its brand strength by expanding into adjacent categories, such as trailers and accessories, which we expect to continue. However, Malibu hasn’t rested only on innovation to grow profits, also curating savings through streamlined production and rising efficiencies through vertical integration. As evidence, efforts at Pursuit’s new plant had increased the EBT margin at the brand to 13% in 2022 (from 9% in 2020), even with the acquisition of Maverick. With continuous improvements to the manufacturing process, Malibu should be able to limit expense growth over time.

Echoing commentary of other recreational product companies recently, narrow-moat Malibu has experienced a rapid drop-off of retail demand, as more consumers are hindered by higher interest rates and economic uncertainty. As a result, the firm saw unit shipments decline 24% in its first quarter, below the 22% decline we'd forecast, although average selling prices, or ASP, still rose 11.5%, helped by higher-ticket saltwater comprising a larger part of the mix. Higher floorplan financing and input costs sent the gross margin down 250 basis points, to 22.2%, and operating expense ratios rose due to higher compensation costs, leading to 370 basis points of adjusted EBITDA compression (15.2%). In response to eroding conditions, Malibu lowered its 2024 sales outlook to include a high teen to low 20% decline (from mid to high teen decline prior) and nudged EBITDA contraction lower, to 350-450 basis points (from 300-400 basis points), a bit below our outlook before the earnings call, which included a fiscal 2024 sales drop of 15% and EBITDA contraction of 320 basis points. As such, we plan to lower our $87 fair value estimate by a mid-single-digit rate, but view shares as undervalued.

Malibu is a long-established name in performance sport boats, venturing into the sterndrive and saltwater segments via acquisitions in recent years. We believe that its brand, innovative products, and consistent pricing power contribute to a brand intangible asset, which underpins our narrow moat rating. Supporting its market leadership, it’s demonstrated an ability to meet evolving customer preferences, bringing new products to market quickly, with new models and numerous new features rolled out annually across all of its segments. And it has capitalized on its brand strength by expanding into adjacent categories, such as trailers and accessories, which we expect to continue. However, Malibu hasn’t rested only on innovation to grow profits, also curating savings through streamlined production and rising efficiencies through vertical integration. As evidence, efforts at Pursuit’s new plant had increased the EBT margin at the brand to 13% in 2022 (from 9% in 2020), even with the acquisition of Maverick. With continuous improvements to the manufacturing process, Malibu should be able to limit expense growth over time.

We plan to lower our $96 fair value estimate for narrow-moat Malibu Boats by a high-single-digit rate, fully attributable to a weak sales outlook for fiscal 2024. While we assumed top-line growth would continue, the firm now expects net sales to decline at a mid- to high-teens clip, as the backlog at dealers has largely been remedied and the firm is taking a defensive stance on shipments, given consumer uncertainty. As consumers continue to shift spending to services over goods, we think this is prudent; it ensures that the dealer base doesn’t wind up with stale inventory, and Malibu avoids the risk of higher floorplan financing costs, which it generally shares over part of the year. But even with the expected massive sales decline, fiscal 2024’s adjusted EBITDA margin is set to be around 17%, not far from the 18% we had incorporated into our previous outlook. Transitory softness in consumer demand fails to derail our long-term outlook for 4% unit growth and 3% price growth on average (including acquisitions) as well as high-teens adjusted EBITDA margin. We view the shares as attractive.

Malibu is a long-established name in performance sport boats, venturing into the sterndrive and saltwater segments via acquisitions in recent years. We believe that its brand, innovative products, and consistent pricing power contribute to a brand intangible asset, which underpins our narrow moat rating. Supporting its market leadership, it’s demonstrated an ability to meet evolving customer preferences, bringing new products to market quickly, with new models and numerous new features rolled out annually in the performance sport segment. And it has capitalized on its brand strength by expanding into adjacent categories, such as trailers and accessories, which we expect to continue. However, Malibu hasn’t rested only on innovation to grow profits, also curating savings through streamlined production and rising efficiencies (through vertical integration). As evidence, efforts at Pursuit’s new plant had increased the EBT margin at the brand to 15% in 2022 (from 9% in 2020). With continuous improvements to the manufacturing process, Malibu should be able to limit expense growth over time.

We don’t plan to alter our $96 fair value estimate for narrow-moat Malibu Boats after digesting better-than-expected third-quarter results and view shares as attractive. Sales of $375 million handily surpassed our $344 million estimate, as shipments of Cobalt and saltwater units grew 5% and 30%, respectively. Total unit selling prices rose 6%, ahead of our 1% projection, although this was partially due to mix, with saltwater comprising 27% of units in the period, up from 22% last year. An enterprise level adjusted EBITDA margin of 21.1%, down 210 basis points, was hurt by inflation and mix. We model mix to continue to pressure EBITDA margin, due to saltwater’s lower profitability than other segments. Over time, as efficiencies surface for the saltwater brands (from manufacturing and vertical integration investment), segment profitability should trend toward enterprise level. However, future acquisitions that initially are margin dilutive are included in our projections, which will bound material profit upside. As such our long-term adjusted EBITDA outlook stands at a high-teens rate.

Malibu is a long-established name in performance sport boats, venturing into the sterndrive and saltwater segments via acquisitions in recent years. We believe that its brand, innovative products, and consistent pricing power contribute to a brand intangible asset, which underpins our narrow moat rating. Supporting its market leadership, it’s demonstrated an ability to meet evolving customer preferences, bringing new products to market quickly, with new models and numerous new features rolled out annually in the performance sport segment. And it has capitalized on its brand strength by expanding into adjacent categories, such as trailers and accessories, which we expect to continue. However, Malibu hasn’t rested only on innovation to grow profits, also curating savings through streamlined production and rising efficiencies (through vertical integration). As evidence, efforts at Pursuit’s new plant had increased the EBT margin at the brand to 15% in 2022 (from 9% in 2020). With continuous improvements to the manufacturing process, Malibu should be able to limit expense growth over time.

We don’t plan any material change to our $100 fair value estimate for narrow-moat Malibu after incorporating second-quarter results into our model. Total sales rose 28%, to $339 million, edging our $313 million forecast, with strength across the firm’s portfolio (Malibu units up 12%, Cobalt and Saltwater up mid-20%). For the enterprise, unit shipments ticked up 18% while pricing jumped 9% as consumers continued to drift toward higher amenity products. Strong pricing persisted across all three segments, with Malibu average selling prices up 6%, Cobalt up 9%, and saltwater 11% higher. Unfortunately, expenses were a bit higher than we forecast due to inflationary costs (input and labor), sending the gross margin down 180 basis points, to 22.3% versus our 24% estimate. This ultimately led to a 17% adjusted EBITDA margin, representing a 120-basis-point downtick over last year.

Amid concerns about inflation and the global geopolitical environment, Malibu's stock price struggled to stabilize in 2022, sliding 22% over the calendar year. Even with a high-single-digit price gain year-to-date through Jan. 20, Malibu still trades at a more than 40% discount to our $100 fair value estimate. We contend that the market is overweighting the magnitude of impact of inflationary risks on consumer demand. In our opinion, these issues have led Malibu's trailing 12-month P/E multiple to contract from its five-year historical average of 13.5 times to 6.4 times at end of calendar year. This is versus our five-year double-digit EPS growth outlook (11%). Furthermore, with the enterprise value/trailing 12-month EBITDA (4.3 times) trading at a more than 50% discount to the five-year historical average (8.7 times), we think Malibu shares provide an attractive point of entry.

Malibu is a long-established name in performance sport boats, venturing into the sterndrive and saltwater segments via acquisitions in recent years. We believe that its brand, innovative products, and consistent pricing power contribute to a brand intangible asset, which underpins our narrow moat rating. Supporting its market leadership, it’s demonstrated an ability to meet evolving customer preferences, bringing new products to market quickly, with new models and numerous new features rolled out annually in the performance sport segment. And it has capitalized on its brand strength by expanding into adjacent categories, such as trailers and accessories, which we expect to continue. However, Malibu hasn’t rested only on innovation to grow profits, also curating savings through streamlined production and rising efficiencies (through vertical integration). As evidence, efforts at Pursuit’s new plant had increased the EBT margin at the brand to 15% in 2022 (from 9% in 2020). With continuous improvements to the manufacturing process, Malibu should be able to limit expense growth over time.

We don’t plan to alter our $100 fair value estimate for narrow-moat Malibu Boats and view shares as undervalued, even after a mid-single-digit pop after its first-quarter print. Sales grew 19% to $302 million and adjusted EPS rose 31% to $1.79, ahead of our $290 million and $1.61 estimates. Both volume and price held up well, with the former up 10.5% and the latter higher by 8%. Average selling prices, or ASPs, were supported by a shift to premium products—longer length boats, often with more attachments. This shift should lead to ASPs that stay positive, while unit growth normalizes to a low-single-digit pace as retail sales slow (Malibu expects retail demand to decline at a high-single-digit clip in fiscal 2023). Dealer inventory is improving in certain areas (Cobalt) but remains depressed in the aggregate, with the saltwater segment struggling to refill the channel. In our opinion, this indicates that Malibu should have ample support for unit demand throughout its fiscal year, independent of whether retail demand takes a turn for the worse.

Malibu is a long-established name in performance sport boats, venturing into the sterndrive and saltwater segments via acquisitions in recent years. We believe that its brand, innovative products, and consistent pricing power contribute to a brand intangible asset, which underpins our narrow moat rating. Supporting its market leadership, it’s demonstrated an ability to meet evolving customer preferences, bringing new products to market quickly, with new models and numerous new features rolled out annually in the performance sport segment. And it has capitalized on its brand strength by expanding into adjacent categories, such as trailers and accessories, which we expect to continue. However, Malibu hasn’t rested only on innovation to grow profits, also curating savings through streamlined production and rising efficiencies (through vertical integration). As evidence, efforts at Pursuit’s new plant had increased the EBT margin at the brand to 15% in 2022 (from 9% in 2020). With continuous improvements to the manufacturing process, Malibu should be able to limit expense growth over time.

We don’t plan to materially alter our $100 fair value estimate for Malibu Boats after digesting its fourth-quarter results and fiscal 2023 outlook, and view shares as attractive. Fourth-quarter performance evidences that the outdoor lifestyle remains paramount to consumers, with sales up 28%, thanks to a more than 10% increase in volumes and a nearly 16% increase in pricing. Such robust price rises indicate the brand continues to resonate with consumers (the key tenet underlying our narrow moat rating) while the willingness to trade up (mix and complexity of models) implies higher-income consumers are still less concerned about global economic conditions—the average selling price of Malibu’s boats was around $136,000. Although profitability was a bit weaker than we anticipated, with the firm delivering an adjusted EBITDA margin of 21% (versus our more than 22% estimate), we surmise some expenses surrounding supply chain and input cost inflation will prove transitory.

Malibu is a long-established name in performance sport boats, venturing into the sterndrive and saltwater segments via acquisitions in recent years. We believe that its brand, innovative products, and consistent pricing power contribute to a brand intangible asset, which underpins our narrow moat rating. Supporting its market leadership, it’s demonstrated an ability to meet evolving customer preferences, bringing new products to market quickly, with new models and 30-40 new features rolled out annually in the performance sport segment. And it has capitalized on its brand strength by expanding into adjacent categories, such as trailers and accessories, which we expect to continue. However, Malibu hasn’t rested only on innovation to grow profits, also curating savings through streamlined production and rising efficiencies (through vertical integration). As evidence, efforts at Pursuit’s new plant had increased the EBT margin at the brand to 14% in 2021 (from 9% in 2020). With continuous improvements to the manufacturing process, Malibu should be able to limit expense growth over time.

Narrow-moat Malibu’s operational prowess was on full display in its third quarter (ending March), printing robust performance despite supply chain issues, cost inflation, and economic uncertainty. The company delivered 26% sales growth, to $344 million, thanks to 21% average selling price growth (mix, with the acquisition of Maverick taking place in the third quarter 2021) and a 4.4% volume hike. Impressively, the gross margin expanded 180 basis points, as price and mix aided performance, leading to a record adjusted EBITDA margin of 23.2%. Commentary surrounding demand was promising, with new boat buyers pruning back only modestly in 2021 (to around 56,000 consumers, from 63,000 in 2020), well above the 44,000 first-time buyers the industry averaged over the prior decade. First-time boat buyers for new and used units was also strong, at more than 415,000 units, a figure seen only once before in the last 15 years. In our opinion, this implies interest in the outdoor lifestyle has held firm despite a broad reopening of other experience parts of the economy.