MarineMax: Business Strength Can Drive Upside

| About: MarineMax Inc. (HZO)
This article is now exclusive for PRO subscribers.

Summary

Major industry upgrade cycle.

Middle-upper income & gas helping overall.

Comp store sales have been on fire with easier laps ahead.

MarineMax (NYSE:HZO) same-store sales have been extremely strong and we are just about to go into their peak season.

They weathered economic volatility of last year with double-digit same-store sales. The December quarter lapped a 45% comp last year with an 8% this year. Comps get easier and were 'only' up 27% last year in the March quarter. If the 'two-year' comp trend can continue there is a chance for a nice acceleration in a peak season for MarineMax. Thereafter comparisons continue to ease and were 'only' up 10% and 17% the rest of last year potentially leading to easier hurdles over last year's numbers.

Several Reasons For the Performance

*Most, if not all, major manufacturers have had exciting new products for the first time in many years. Customers have not had a reason to go out and shop. SeaRay and Azimut are two key vendors that have had strong new offerings driving excitement. After having been on the sidelines for some time, customers have reason to come in, kick the hulls, and take one home.

*Gas prices coming down making it more 'affordable' to drive a yacht.

Financial Markets Back Up

On their last conference call (February 4th), they said that business continued strong. They said January was slower but backlog for the quarter was up meaningfully. That happened to coincide with financial markets melting down. Now with markets back up, the wealth effect can help sales follow through.

Drivers To Earnings Upside

Near term, they lap a quarter that saw some push-outs from the March quarter last year into the June quarter. That can potentially help the report this year. They also had one time costs last quarter that don't repeat allowing for more profit flow through to earnings.

The December quarter happened to be their biggest December quarter profit in a decade. By now going into their peak season, if they can maintain any level of those trends, they should see strong flow through to earnings.

The company has pointed out publicly that ex-one time items flow through of upside top line to earnings was 15%. For a small quarter, that is impressive. While that sounds good, we think the big quarters that they have coming could be greater flow-through than that. Fixed costs stays steady and the top line gets much bigger seasonally leaving more room for margins to flow through, potentially if they hold trends.

Valuation and Stock Price Drivers

The short interest is near its highs and the stock is off its highs. If trends continue shorts will need to cover and investors will have to pay attention to their peak seasons.

The stock has traded historically between 10-40XPE. We think the company can make over $1.00 potentially this year if they see comp trends continue which should be able to drive earnings flow through. That combined with the short interest and the stock down can potentially force the shares higher. The company is guiding to $0.60-$0.70 for this year, but if trends continue strong, we believe that can prove conservative given the fixed cost leverage that should flow through to EPS.

Elazar Advisors, LLC specializes in earnings and predicts, analyzes and reacts to earnings and earnings events as well as developing current company and macro stories with a hedge fund perspective.

If you want Elazar's analysis on Seeking Alpha, scroll to the top of the article and hit "Follow." Elazar also writes real-time pieces as earnings and news are reported on Seeking Alpha. If you want to be among the first updated, be sure to check the box for "Real-time alerts on this author" under "Follow."

Disclosure: All investments have many risks and can lose principal in the short and long term. This article is for information purposes only. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and hold Chaim Siegel, Elazar Advisors, LLC, best ideas, their related parties, and its authors harmless.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: We may buy MarineMax