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Lake Street Rated Polaris Industries as a ‘Buy’

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Price movement of Polaris Industries

Polaris Industries (PII) has a market cap of $6.2 billion. PII fell by 2.3% to close at $95.29 per share as of March 15, 2016. The price movement on a weekly, monthly, and year-to-date (or YTD) basis was 0.87%, 20.2%, and 11.6%, respectively.

PII is trading 5.3% above its 20-day moving average, 14.0% above its 50-day moving average, and 16.1% below its 200-day moving average.

The Vanguard Mid-Cap ETF (VO) invests 0.26% of its holdings in Polaris Industries. The ETF tracks the CRSP US Mid Cap Index, a diversified index of midcap US companies. The YTD price movement of VO was -1.2% as of March 14, 2016.

The Vanguard Extended Market ETF (VXF) invests 0.19% of its holdings in Polaris Industries. The ETF tracks a market-cap-weighted version of the S&P Total Market index, excluding all S&P 500 stocks.

The market caps of Polaris’ competitors are as follows:

  • Textron (TXT) — $9.0 billion
  • Harley-Davidson (HOG) — $9.1 billion
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Lake Street

Lake Street initiated the coverage of Polaris Industries with a “buy” rating.

Performance of Polaris Industries in 4Q15 and 2015

Polaris Industries (PII) reported 4Q15 sales of $1,105.6 million, a fall of 13.3% compared to sales of $1,275.0 million in 4Q14. The company’s cost of sales as a percentage of sales rose by 1.4%, and gross profit margin fell by 2.8% in 4Q15 compared to 4Q14.

Polaris’s net income and EPS (earnings per share) fell to $110.7 million and $1.66, respectively, in 4Q15, compared to $135.4 million and $1.98, respectively, in 4Q14.

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2015 results

In 2015, Polaris Industries reported sales of $4,719.3 million, a rise of 5.4% YoY (year-over-year). The company’s gross profit rose by 1.5% in 2015 compared to 2014. Also, the company’s net income and EPS rose to $455.4 million and $6.75, respectively, in 2015, compared to $454.0 million and $6.65, respectively, in 2014.

Meanwhile, its cash and cash equivalents and inventories rose by 12.9% and 25.5%, respectively, in 2015. Its current ratio and debt-to-equity ratio rose to 1.39x and 1.42x, respectively, in 2015, compared to 1.28x and 1.39x, respectively, in 2014.

Polaris’s price-to-earnings and price-to-book value ratios are 14.1x and 6.4x, respectively, as of March 15, 2016.

Projections

Polaris Industries (PII) has made the following projections for 2016:

  • EPS in the range of $6.20–$6.80 per share due to weak industry trends in oil and gas regions of North America and volatility in currency markets
  • sales in the range of -2%–3%
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