Malibu Boats Earnings: Demand Weakness Continues, Driving Higher Promotions and Lower Absorption

Shares of narrow-moat Malibu Boats held flat in Aug. 29 trading even though the firm reported a highly promotional fiscal fourth quarter and gave a tepid outlook for fiscal 2025. Although the pressure on consumers from higher prices and higher interest rates is weighing on near-term boat demand, languishing throughput isn’t specific to Malibu but rather industrywide. The firm’s inaugural 2025 outlook includes low-single-digit sales growth, in line with our prerelease 3% forecast. However, it also includes an adjusted EBITDA margin of 10%-12%, significantly below our 17% forecast. As such, we plan to lower our $58 fair value estimate by a high-single-digit rate to account for higher promotions and lower cost absorption over the next few quarters. Even with a move down in intrinsic value, we view the shares as extremely undervalued, as we believe Malibu's normalized earnings power is well above current levels, as indicated by the 17% terminal EBITDA margin in our model.