04:02 PM EDT, 07/10/2024 (MT Newswires) -- Near-term sentiment of recreational marine-focused companies is expected to stay "cautious" amid continued uncertainty around demand trends and fears that elevated promotional efforts could continue into the second half of 2024, B. Riley Securities said Wednesday.

The brokerage lowered its respective price targets on the stocks of Brunswick (BC), Malibu Boats ( MBUU ) , MarineMax ( HZO ) and MasterCraft Boat ( MCFT ) . The companies' current valuations reflect an expectation that each will cut its respective financial outlooks. "The question only becomes by how much based on recent trends and inventory levels," B. Riley analyst Eric Wold said in a note to clients.

Data from Statistical Surveys showed that new boat registrations declined roughly 10% year over year in May, following a 0.8% gain the previous month, according to the note. B. Riley said it was "surprised by the relatively weak preliminary data given the meaningfully elevated efforts" by both original equipment manufacturers and dealer groups to provide promotional support to consumers to get boats sold and reduce channel inventory.

Investors have likely "grown increasingly concerned" that the recent registration data could hint at an underlying negative shift in boat demand, according to the note.

The focus of the management teams of Brunswick, Malibu Boats ( MBUU ), MarineMax ( HZO ) and MasterCraft in their upcoming quarterly results and guidance is expected to be dependent on where industry channel inventory stands relative to brand-specific channel inventory levels, Wold said.

"If inventories remained above targeted levels at the end of June, we believe the recently elevated promotional activity is likely to linger into the September, and possibly December, quarter -- which could adversely impact the desire of dealers to purchase additional boats and the ability of OEMs to ramp production on the preferred model year timetable," the analyst wrote.

The brokerage said Brunswick continues to be the best positioned company in the group to benefit from a potential pivot in demand. B. Riley has "concerns" that elevated inventories and higher promotional activity could affect Malibu Boats' ( MBUU ) wholesale demand and margins in early 2025, according to the note.

Although MarineMax ( HZO ) could see boat demand weakness, Island Capital Group's recent proposal to acquire certain businesses of the company "confirms our belief that outside interest could unlock shareholder value" for MarineMax ( HZO ), Wold said.

"While near-term demand trends remain uncertain and elevated promotional efforts may continue into the second half of (2024), we believe that each of the balance sheets of the company's under coverage have improved materially in recent years and the flexible manufacturing models should help maintain positive cash flow," the analyst said.

Price: 70.95, Change: +1.41, Percent Change: +2.03