Champion Homes, Inc. (NYSE: SKY), formerly Skyline Champion, got a name change in 2024, doing little to alter the outlook. The outlook is bright because market conditions, persistently low housing inventory, and its focus on affordability make it a winner for consumers.
Champion is a leader in modular and manufactured homes and related services. The takeaway is that this company resumed top-line growth at the end of fiscal 2024, is growing above the industry pace, and is accelerating in F205, providing robust cash flow and enabling significant improvement in shareholder value.
Because housing prices are expected to remain firm while demand builds, this company is set up to sustain industry-leading growth for the foreseeable future. It also has a strengthening tailwind in the form of FOMC interest rate cuts that will likely lead to outperformance relative to the outlook in CQ4 2024. The FOMC is unlikely to cut rates as quickly as the market hopes (barring a recession) but is on track to sustain regular rate cuts through the end of next year, relieving some of the pressures curtailing the housing market today.
Acquisitions, Demand, and Pricing Drives Champion Homes, Inc. Results
Champion Homes had a solid quarter in FQ1, with organic demand, price increases, and acquisitions driving strength. The company reports $627.78 million in net revenue for a gain of 35.1% over the prior year. The revenue also outpaced the consensus target published by MarketBeat by 430 basis points and is compounded by margin strength. The gains were driven entirely by growth in the core U.S. Homes segment, which grew by 35.7%, offset by contraction in the smaller Canadian homes segment and aided by a 3% increase in average selling price.
Margin news is mixed with acquisitional costs and mix-shifts, leading to a 170 basis point decline in the gross margin and increased SG&A expenses. However, the takeaways are that much of the impact is one-offs related to acquisitions, which will soon dissipate, and the impact was far less than expected. The adjusted results include a 3.5% increase in net earnings and adjusted EPS with the adjusted EPS of $0.91, more than 2500 basis points above the consensus, sufficient to sustain the capital return and balance sheet strength.
The balance sheet is a fortress. The company is net cash with a total long-term liability of less than 0.1x equity and 0.2x cash, leaving it in a position of financial strength. It can continue its acquisition and business unification plans, including consolidating operations under the core brands while improving capacity. The company can also repurchase shares, offsetting share-based compensation with $20 million in repurchases during FQ1. The net result of operation for Q1 was a positive cash flow quarter, an increase in cash, current, and total assets, and a 2% improvement in shareholder equity.
Analysts Sentiment Lags Champion Homes Price Action; Revisions Support the Market
The analysts' sentiment is lagging the market for Champion Home stock price, but revisions support it and suggest an upgrade cycle is at hand. The latest revisions are from RBC, Jefferies, and Barclays, which issued their reports following the FQ1 2025 release. They raised their targets to the high end of the range, lifting the highest target to $86, which assumes fair value at 5% below the recent action.
The critical takeaway from the analysts' data is that the consensus is up 15% compared to last year, rising compared to the previous quarter and month, with strength expected in the upcoming report. The analysts have set the bar high with their EPS revisions, but their targets need to be higher. They are expecting a sequential decline in revenue despite the growing backlog. The backlog rose nearly 30% sequentially in Q1 and 55% compared to last year, suggesting a much stronger result is likely.
Champion Could Rise Another $30 Before Year’s End
The price action in Champion Homes suggests it could rise another $30 before the year’s end. The market has rallied strongly since the Q1 release was filed, creating a solid updraft in prices, resulting in consolidation at all-time highs and a bull flag signal. The bull flag signal is a continuation signal that may be confirmed following the subsequent earnings due at the end of October. The minimum target for gains is $30 or the magnitude of the rally leading into the consolidation; the bull case scenario is the same figure as a percentage movement, roughly 50% of the price before the Q1 report. The market could rise into the $ 140 range in that scenario.
