Analysts

Ayush Paliwal|Parm Sidhu|Jared Lo

Equity Research Canada
Johnson’s Outdoors Inc. (NASDAQ: JOUT)
Price Target USD$ 78
Consumer Goods - Outdoor Recreation
Rating BUY
“Fishing For A Winner” Share Price (Feb. 27 Close) USD$ 62.01
February 24, 2018
Total Return 25.8%

Key Statistics
Founded in 1970, Johnson’s Outdoors Inc. is a leading global
manufacturer of branded outdoor recreational products. The 52 Week H/L $76.18/$32.98
company designs, manufactures and markets a portfolio of Market Capitalization $640M
brands across four segments: Fishing, Camping & Hiking, Diving,
Average Daily Trading Volume $45K
and Watercraft Recreation.
Net Debt $0M

Thesis Enterprise Value $542M

Johnson Outdoors is a financially stable company, with Net Debt/EBITDA 0x
established cash flows, a strong balance sheet, and no long-term
Diluted Shares Outstanding $9M
debt. The company will benefit from an increase in baby
boomers’ retirement rates, as well as inorganic growth to build Free Float 1.1%

market share in different segments of the outdoor recreation Dividend Yield 0.6%
industry. With a booming industry and sustainable growth Forecast
prospects, we believe the company poses as an attractive
2018E 2019E 2020E
investment in its current price. Additionally, Johnson Outdoors’
consolidated balance sheet allows for the flexibility to spend on Revenue $550M $700M $930M
innovation, acquisitions, dividends, or buyback shares. EBITDA $54M $67M $83M

Net Income $34M $54M $70M
Industry Analysis
EPS $3.40 $5.39 $7.08
In 2017, it was estimated the outdoor recreation industry
contributed $887 billion in direct consumer spending in the US- P/E 19.7x 16.4x 13.6x
of that, the recreational fishing industry held a large percentage. EV/EBITDA 8.8x 7.9x 7.7x
With over 45.7 million people having reported taken a fishing
1-Year Price Performance
trip and a 5% CAGR in the number of paid fishing license holders
in the United States since 2014, fishing is among one of the most $80
popular outdoor activities. Despite ~60% of fishing participants
$70
being under the age of 45, the activity is predominantly
recognized as one for older generations. As baby-boomers $60
continue to exit the workforce each year, they seek ways to
$50
remain both active and entertained. It can be noted that four
million people retire each year and during this period in their $40
lives, possess a substantially greater amount of disposable $30
income. This unprecedented financial freedom that was not Feb Apr Jun Aug Oct Dec
realized earlier in their lives allows them to be able to spend
more on the consumption of leisure goods.

Economic Moats

Economies of Scale: As the leading innovator in outdoor recreational products, JOUT is in a strong position to pursue
sustainable long-term growth in its respective industry. Johnson Outdoors’ large cash flow allows the business to
consistently seek out new ways to continue to develop their expansive product lines, creating strong barriers to entry.

Intangible Assets: Johnson Outdoors operates many well-recognized brands in the outdoor recreational product industry.
The company’s strong FY17 reflects their consumer’s satisfaction with their brand, innovative products, and quality. The
combination of recent unparalleled growth in brand recognition, strategic acquisitions, and innovation places the
company at a significant advantage amongst its competitors.

Catalysts

Acquisitions: With approximately 110 million in cash, management has expressed the desire to acquire smaller brands
due to the fragmentation of the outdoor recreation industry and the benefits of economies of scale through inorganic
growth. If the current bull market growth begins to slow and competitors begin to struggle, Johnson’s Outdoors may have
the opportunity to acquire smaller manufacturers at an attractive price. The company has a proven track record of
successful acquisitions in adjacent markets, evidenced by the success of the Minn Kota®, Humminbird®, and SCUBAPRO®
brands which have all won innovative product of the year at ICAST, the world’s largest marine and fishing show.

R&D: Johnson Outdoors fishing and diving brands had an exceptional FY17 driven by unprecedented growth with new
products accounted for 60% of revenues. We anticipate continued spending towards innovation in these brands will drive
top-line growth, such as the fishing equipment targeting southern bass fishing, who’s consumers compose a significant
portion of the multibillion-dollar industry. Our analysis of upcoming products suggests there’s still plenty of opportunity
to penetrate a significant segment of the outdoor recreation market, driven by targeting retiring baby-boomers.

Digital Transformation Strategy: Investment towards richer consumer insights are the catalysts behind innovation and
going forward will be the genesis of targeted marketing and a better understanding of consumer trends. With more
consumers beginning their outdoor experience online, an increase in online presence through a revamping of brand
websites and investment in digital marketing efforts will ensure sustainable top-line growth.

Risks

Consumer Discretionary Spending: The company operates in an industry that relies heavily on discretionary consumer
spending, which means an economic downturn could significantly affect sales.

Foreign Exchange Risk: Johnson Outdoors has significant foreign operations and changes in currency exchange rates may
cause unexpected financial losses or cash flow needs.

Valuation

We used a discounted cash flow analysis (DCF) and comparable company analysis (CCA) to determine a fair share price.
The DCF utilized management’s estimates about revenue, COGS margins, and SG&A margins. In determining peers for our
CCA, we used primarily North American company’s operating in the outdoor recreation industry. With the DCF and CCA
weighted at 50% each, our 12-month target share price for JOUT is $78, representing a 25.8% upside.