Northcoast Research Downgrades Polaris Industries to ‘Neutral’

Polaris Industries (PII) has a market cap of $5.6 billion. It fell by 2.5% to close at $86.64 per share on August 31, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -4.9%, -5.6%, and 2.7%, respectively, on the same day. PII is currently trading 6.8% below its 20-day moving average, 3.5% below its 50-day moving average, and 2.6% below its 200-day moving average.

The VanEck Vectors Morningstar Wide Moat ETF (MOAT) invests 3.6% of its holdings in Polaris. The ETF tracks an equal-weighted index of 20 companies that Morningstar determines to have the highest fair value among companies with a sustainable competitive advantage. The YTD price movement of MOAT was 19.8% on August 31.

The Vanguard S&P Mid-Cap 400 Growth ETF (IVOG) invests 0.84% of its holdings in Polaris. The ETF tracks a market-cap-weighted index of growth companies culled from the S&P 400.

The market cap of Polaris’ competitors are as follows:

• Textron (TXT) — $11.0 billion
• Harley-Davidson (HOG) — $9.5 billion

Northcoast research has downgraded Polaris Industries’ rating to “neutral” from “buy.”

Polaris Industries reported 2Q16 sales of $1.13 billion, a rise of 0.58% over the sales of $1.12 billion in 2Q15. Sales for the motorcycles and global adjacent markets segments rose by 23.3% and 14.2%, respectively. Sales of the ORV (off-road vehicles) and snowmobiles segment fell by 5.7% between 1Q15 and 1Q16.

The company’s gross profit margin and operating income fell by 11.4% and 28.7%, respectively, between 1Q15 and 1Q16. Its net income and EPS (earnings per share) fell to $71.2 million and $1.09, respectively, in 2Q16, compared with $100.9 million and $1.49, respectively, in 2Q15.

Polaris Industries’ cash and cash equivalents rose by 23.4% and its inventories fell by 2.3% between 1Q15 and 1Q16. Its current ratio fell to 1.2x and its DE (debt-to-equity) ratio rose to 1.6x in 2Q16, compared with 1.6x and 1.4x, respectively, in 2Q15.

During 2Q16, it repurchased and retired 652,000 shares of its common stock worth $58.9 million. As of June 30, 2016, it has the authorization to repurchase up to 8.7 million additional shares.

Polaris Industries has declared a regular quarterly dividend of $0.55 per share on its common stock. The dividend will be paid on September 15, 2016, to shareholders of record at the close of business on September 1, 2016.

The company has updated its projections for 2016. It expects to see sales growth of -2%–0%. Further, it expects the ORV and snowmobiles segment’s sales to see a mid-single-digit decline and the motorcycle segment’s sales to see a double-digit increase. Furthermore, the company expects the GAM (global adjacent markets) segment’s sales to see an increase in the mid-teens. Finally, EPS are expected to come in at $6–$6.30. In the next part of this series, we’ll look at Brunswick (BC).