REV Group (NYSE: REVG) shares put in a bottom just days before the Q4 report when Robert W. Baird analyst Mircea Dobre upped the stock to Outperform from Neutral. According to the firm, REV Group benefits from supply chain improvements, a high backlog, and an opportunity for margin expansion with a long-term upward trajectory for stock prices. The Q1 results and guidance confirmed that theory and the stock moved higher.

Unfortunately, price action hit the ceiling at $14, and that level could cap gains for the foreseeable future.  Mr. Dobre’s view contradicts the bulk of analysts who view the stock as a Hold. His target implies a 33% upside compared to a market that believes the stock is trading at fair value. 

“Visibility extends into 2025 even in a tougher macro environment; this should make REVG shares attractive relative to other small cap machinery,” Dobre told clients. “It is important to recognize that F&E has ALL its production through 2024 already in backlog with additional new orders supporting 2025 and beyond.”

REV Group: Comfortably Outperforms With Smoking Quarter 

REV Group had a fantastic quarter due to supply chain improvements that have allowed it to address some of the backlogs. The Commercial segment led with a gain of 32% which was compounded by an 11.5% gain in the Recreational segment. Recreational segment gains contradict the RV industry, logging a high-double-digit decline for OEMs and component manufacturers like Thor Industries and LCI Industries. The F&E segment was the only one to produce a decline due to parts and labor shortages as well as mix. 

Margin news is mixed this quarter. The company logged a contraction in GAAP margin due to restructuring and divestiture-related charges, but the adjusted EBITDA grew by 16%. The takeaway is that adjusted EPS came in at $0.12, which is $0.13 above the Marketbeat.com consensus and delivers a surprise profit in the face of an expected loss.

Regarding the guidance, the company expects $2.3 to $2.5 billion in revenue compared to the $2.4 expected by the analysts. This is enough to help support the price action but not enough to spur a rally or sustain higher share prices but it could be cautious. 

“First quarter results reflect an improving operating environment as the efforts of our team to manage through an inconsistent supply chain take hold.” REV Group Inc. Interim President and CEO Mark Skonieczny said. “I am pleased with solid operational performance within our commercial and recreation segments that resulted in increased production and unit shipments surpassing our expectations. We continue to address inefficiencies within the fire group that has weighed on the segment performance, and I have confidence in our ability to increase its profitability throughout the year.”

REV Group Returns Capital To Shareholders 

REV Group isn’t a high-yielding stock but an attractive small-cap dividend payer that yields about 1.6%. This payout is safe regarding the earnings outlook at only 23% of the consensus estimate and 1 reason the stock command such a high institutional interest. Institutions own about 98% of the stock, and their activity has been balanced over the past few quarters. 

The chart is not promising. The stock corrected from its post-pandemic peak and is wrestling with resistance at the mid-point of a 2-year trading range. Based on the candle forming in the wake of the report, that range and the mid-point of the range will be a significant pivot point for the foreseeable future. If the market can get above that level, a move higher is possible; if not, this market will remain range bound and at the low end of the longer-term range.