Drew Industries, Inc. (DW)

TMFPlatoish (97.51) Submitted: 9/02/08 7:55 PM : Start Price: $16.34 DW Score: 7.85

Drew Industries is one of the best managed companies I've looked at. It is in an industry that is out of favor and the trajectory of topline growth is negative. It manufactures a whole array of components, if you will, for the towed RV and manufactured home markets. With gas prices where they are, the end market is soft to say the least.

However, during these tough times, Drew has managed to stay profitable and improve margins. It has a laser focus on containing operating costs and improving manufacturing efficiency. Many plants have been closed and operations consolidated. It also has been able to continue doing what it does best, buying niche equipment makers at good prices. Its acquisitions are always intended to complement Drew's current offerings. It then uses its relationships with RV and MH makers to take the new offerings to a larger market. Its goal is to improve the dollar content of its equipment in every RV sold, and has done so year after year.

RV demand still has the aging boomer demographic trend at its back, though macro-economic considerations and gas prices are currently headwinds. The manufactured home market has been in decline also recently, but should get better in the future. Recent events in the housing market and new federal legislation may prove beneficial. The amount of mortgage available for manufactured housing (chattel loans) has recently been raised. MHs also are much more affordable than a single family dwelling and a long time favorite of retirees looking to downsize in a sunny locale. With banks now actually looking at whether a mortgage applicant can afford the home, more folks will view MHs as a reasonable alternative.

Drew has a strong balance sheet, good insider ownership, and a great management team. It trades at an EV/EBITDA multiple of about 4X and at 13X (depressed) forward earnings. If gas prices begin to subside, the top line will improve. Because of its operating discipline, diproportionate growth will fall to the bottom line. It looks like a good time to give Drew a "thumbs up" for the next few years.

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