Brunswick Corp

On Sept. 21, Brunswick announced Executive Chairman and CEO David Foulkes would retire at year-end. Aine Denari, the chief technology officer and president of the Navico business, is set to take the helm and join the board of directors on Jan. 1, 2027.

Why it matters: Denari is well equipped to lead the firm, starting at Brunswick in 2020 as head of the boat group, and navigating the segment through the covid demand boom and bust, supply chain constraints, and tariff volatility. Still, segment sales rose 22% cumulatively over the last five years. With a firm forecast of just 5%-15% growth in aggregate boat unit demand over time, we expect a more moderate growth pattern will be increasingly manageable, driving operating efficiencies. As such, we model low-teens operating margins over time, up from 7% in 2025.

The bottom line: We don't plan to alter our $87 fair value estimate for narrow-moat Brunswick as we think Denari helped craft the firm's current 2030 financial targets, which were released in August 2026. These include sales of $7 billion-$8 billion, a 10%-13% operating margin, and EPS of $8-$12. Our 2030 outlook already included $7 billion in sales, a 12.5% operating margin, and $10.87 in EPS, in line with the firm's recent goals. However, given buyers remain stretched, we expect growth of just 3%-4% in the Navico and boat segments, where the firm sees above 7% growth.

Between the lines: We don’t expect a change to our Standard Morningstar Capital Allocation Rating or Brunswick's focus on investing in growth, maintaining a healthy financial standing (investment-grade with good free cash flow generation), and returning capital to shareholders via dividends and repurchases.

We are raising our fair value estimate per share for Brunswick to $87 from $84 after incorporating second-quarter results into our model and accounting for time value. Brunswick's sales grew 8% to $1.56 billion in the second quarter, lapping flat sales last year. With demand stabilizing, we expect mid-single-digit sales growth over the remainder of 2026.

Furthermore, with an appropriately inventoried dealer network, smooth restocking patterns, and improved borrowing costs, floor plan affordability for dealers and financing for consumers could prove helpful in 2026.

These factors, along with changes to tariff policy, underlie the firm's updated 2026 outlook for sales of $5.7 billion-$5.8 billion and EPS $4.35-$4.50. Our updated forecast is in line with this, including $5.76 billion in sales and $4.56 in adjusted EPS. Uncertainty around weak consumer sentiment is the main risk factor to our intrinsic value in the year ahead.

Previously, Brunswick had 2027 goals that included $8.7 billion in sales, a 16% operating margin, and $15 in EPS, metrics that trailed its prior 2025 goals (which included $10 billion in sales, a 17% operating margin, and $16.00-$17.50 in EPS). Our 2027 estimates call for $6.1 billion in sales, EPS of $5.64, and a 9% operating margin.

Brunswick’s more marine-focused scope, operating in the propulsion, parts and accessories, and boat segments (after shedding its fitness business in 2019 and bowling brands in 2014), gives us greater confidence in the firm’s ability to focus on innovation, acquisitions, and vertical integration, which we believe should drive sales growth and significant margin expansion over the next decade. With 3% of sales funneled into research and development each year, Brunswick has consistently released new products and accessories with updated features across its brands, stimulating sales from both new and returning customers. As a complement, we expect Brunswick will also be able to finance strategic acquisitions each year, largely via cash on hand and using existing credit facilities, while still having some flexibility to facilitate share repurchases, thanks to strong cash flow generation. Over the next decade, we forecast sales to grow by an average of 5% per year, with about 200 basis points of the growth attributable to acquisitions. We expect the propulsion segment (the largest player in the industry) to grow 6% annually, followed by 4% growth in parts and accessories and boats, and 3% growth in the Navico segment. This is ahead of our outlook for the boat industry, which we think could rise at a low-single-digit average annual growth rate through 2028.

We believe the firm’s focus on innovation will continue to fuel Brunswick’s commanding brand appeal, which boasts pricing power. As such, we anticipate gross margin to rise to 26% in 2026 benefiting from tariff refunds. We see adjusted operating margin rising to the low teens in 2035 from a very depressed 2025 level of 7% as the firm increases volumes, optimizes its manufacturing footprint, and garners greater negotiating clout with vendors.

Brunswick has historically generated ROICs above our WACC assumption of 10% and should be able to achieve ROICs, including goodwill, that average 15% through fiscal 2035, providing support for our narrow economic moat rating.

We assign Brunswick a narrow moat based on its strong brand intangible assets, reflected in its roughly 50% share of the US outboard propulsion market and well-known boat brands such as Sea Ray. Its vertically integrated parts and accessories business further enhances the customer experience and supports profitability. Brunswick has generated adjusted ROIC, including goodwill, of 15% on average over the past five years, above our 10% WACC estimate, and we expect a similar 15% average over the next decade. However, the fragmented boat market and shifting consumer preferences across boat categories limit our confidence that the company can sustain excess returns for 20 years, supporting a narrow moat rating.

We view propulsion, which generated 38% of sales and operating profit in 2025, as Brunswick's strongest business. As a stand-alone segment, we believe it would merit a wide economic moat, supported by decades of expertise in hydrodynamics, propeller design, and integrated systems. Mercury's innovation, broad product lineup, and leading market share underpin its brand intangible asset, while scale, sourcing, and access to internally supplied engine components through the parts and accessories business create a cost advantage through a more efficient supply chain.

In our opinion, propulsion’s brand benefits from operating in a consolidated $6.5 billion US industry, with Mercury, Yamaha, and Suzuki representing the key players in the marine engine space. The firm offers the widest selection of horsepower outboards, with up to 600 maximum horsepower at Mercury, versus 425 at Yamaha and 350 at Suzuki. We contend that propulsion is insulated from significant share degradation because Brunswick’s boat segment ($1.5 billion in 2025 sales) procures almost all its engines internally. It has also held a long-term relationship with White River Marine Group, the world’s largest builder of fishing and recreational boats by volume. We don’t expect new entrants to threaten Mercury’s enviable market position in engines, as operating in the space has generally been found to be unfavorable given the expensive inputs. Even wide-moat BRP, with ample investment resources, found it difficult to achieve economic feasibility with its long-standing Evinrude engine brand, exiting the market in 2020.

The propulsion segment’s advantage is reinforced by the parts, accessories, and Navico businesses. Brunswick benefits from an intangible asset here: high quality engine components elevate the user experience and strengthen the firm’s Advanced Systems Group, which drives Brunswick’s push toward fully integrated systems. Integrated systems lower costs for Brunswick’s propulsion and boat units and make the company more competitive with smaller manufacturers that prefer turnkey solutions over sourcing components individually. Additionally, as Brunswick reduces reliance on third party suppliers, it gains more control over production risk, repair costs, and long term consumer stickiness.

Both the propulsion and parts and accessories businesses are inextricably linked to Brunswick’s boat business, a segment that we believe holds a narrow moat thanks to its brand intangible asset. Long-standing brands like Boston Whaler and Sea Ray hold high interest with the more than 100 million annual boating participants in the largest global marine markets, offering Brunswick a solid market share. We don’t expect Brunswick to cede share easily, as it continues to invest roughly $220 million on average annually throughout our forecast in R&D.

Although the boat industry has proved cyclical in the past, we think Brunswick has laid the groundwork for steadier brand perception and sales growth ahead. To start, expansion of the members-only Freedom Boat Club, acquired in 2019, offers Brunswick a consistent channel for unit sales. At the end of 2025, FBC operated more than 440 locations in North America and Europe providing 640,000 annual member trips, with consumers that commit to monthly dues for boat access. This base is expected to grow to 500 locations and 80,000 memberships in 2027, which will set FBC up as the biggest Brunswick boat customer on a per unit basis, creating a loyal internal sales base. Besides FBC’s ability to support boating sales, Brunswick has the Boateka platform, selling preowned boats directly to consumers and a consumer advisory board, Ripl, to guide innovation toward emerging consumer trends.

Moreover, we believe Brunswick has a unique distribution base that would be difficult for a competitor to replicate, including more than 7,000 servicing dealers. Brunswick has an important relationship with MarineMax, where its boats accounted for 18% of MarineMax’s revenue in fiscal 2025 (which equates to around $415 million, or 27%, of Brunswick boat sales).

Quantitatively, consumer companies have historically been able to ascertain brand resonance via pricing power, surfacing in improving gross margin performance. Brunswick’s average gross margin over the last five years was 27%, same as the five years prior, even as the firm has faced inflationary headwinds. This metric is better than the 20% achieved at no-moat Malibu in its three most recent fiscal years, as we think Brunswick benefits from the propulsion segment’s profitability. For Brunswick, we don’t think the well for gross margin gains is tapped out; we forecast expansion to just over 28% in 2035 as absorption headwinds abate.

We think a streamlined boat business and vertical integration offers Brunswick improved brand awareness and top-line growth. As Brunswick’s sales and manufacturing processes continue to scale, we think the firm could be on the path to capturing a cost advantage. Brunswick can focus on spreading fixed costs over higher volume, negotiating better with vendors, and manufacturing more efficiently, with a optimized factory footprint.

Vertical integration could offer margin expansion ahead of our forecast, particularly if Navico’s profitability can rise more quickly to approach the parts and accessories business.

Demand could return faster than we expect, delivering cost absorption ahead of our prognosis. This could support a higher valuation if operating margins return to a double-digit rate before 2028.

Brunswick has historically had a solid balance sheet and consistent free cash flow to the firm, which should offer flexibility to withstand cyclical downturns and finance bolt-on acquisitions opportunistically.

Brunswick competes with formidable brand names like Cobalt and Chaparral, which may innovate faster and threaten market share leadership.

Dealers rely on floor plan financing, while consumers utilize product loans. Persistently higher interest rates could prevent inventory from being taken on by dealers and may create hesitancy for consumers, affecting wholesale volume and profits.

Management's desire to keep making acquisitions could prove to be a poor use of capital. The rollup of lower-margin lines could prevent Brunswick from reaching low-teens operating margins again.