Brunswick is a global manufacturer of recreational products. The marine segment is the company’s core business and Brunswick is also manufacturer of fitness machines, bowling equipment and billiard tables. I don’t quite see how you can create synergies by building boat engines and billiard tables, but anyways.
The company operates in a segment of the market, which is extremely vulnerable to the overall economic situation and especially unemployment. BC is therefore a great vehicle to play the “struggling US consumer” theme.
Four analysts are following the stock with an average price target of $21, which is way above the current level of 13 bucks for the stock. On the other hand, short sellers are piling into their positions: over 20% of float is held short and the number rose from June to July. Why are so many investors shorting the stock? Probably because of evaluation: BC is trading 30X 2011 earnings, which is BTW two times the forward PE of Apple!
So who is right: short sellers or analysts? I think we could see downgrades from the later because analysts still expect rising consumer demand and lower unemployment this year.
At this point, I’m comfortable shorting the stock: BC has a relative large market cap, compared to the industry (1.3 bn) and the company is currently not a
takeover candidate. But even in a takeover event, we cannot expect premiums like in the case of e.g. Potash or McAfee. Granted, BC is a short squeeze candidate due to the high short ratio, but I can’t see a short-term catalyst, which would push the shorts out of the stock.
The technical picture is offering a compelling risk reward ratio for a short-term trade: stop-loss @ $15, 1st target $12, 2nd target$10:
