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Polaris Industries Acquires Transamerican Auto Parts

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Price movement

Polaris Industries (PII) rose 2.4% and closed at $75.79 per share during the second week of October 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were 2.4%, 5.6%, and -10.2%, respectively, as of October 14. Currently, Polaris Industries is trading 1.7% above its 20-day moving average, 8.5% below its 50-day moving average, and 11.9% below its 200-day moving average.

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Related ETF and peers

The VanEck Vectors Morningstar Wide Moat ETF (MOAT) invests 3.6% of its holdings in Polaris. MOAT tracks an equal-weighted index of 20 companies that Morningstar determines to have the highest fair value among firms with a sustainable competitive advantage. MOAT’s YTD price movement was 15.1% on October 14.

The market cap of Polaris Industries’ competitors are as follows:

  • Textron (TXT) – $10.2 billion
  • Harley-Davidson (HOG) – $9.0 billion

Latest news on Polaris

In a press release, Polaris said, “Polaris Industries Inc. (PII) (“Polaris” or the “Company”) announced today that it has entered into an agreement to acquire Transamerican Auto Parts Company (“TAP”), a privately held, vertically integrated manufacturer, distributor, retailer and installer of off-road Jeep and truck accessories, for an aggregate consideration of $665 million, subject to customary closing adjustments.” It also said, “After adjusting for the $115 million estimated net present value of future tax benefits, the purchase price implies a multiple of approximately 9.0 times TAP’s EBITDA for the 12 months ended September 30, 2016.”

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Polaris Industries’s performance in 2Q16 

Polaris Industries reported 2Q16 sales of $1.13 billion—a rise of 0.58% from $1.12 billion in 2Q15. The sales for its Motorcycles and Global Adjacent Markets segments rose 23.3% and 14.2%, respectively. Sales of its Off-Road Vehicles and Snowmobiles segment fell 5.7% between 1Q15 and 1Q16.

The company’s gross profit margin and operating income fell 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 to $100.9 million and $1.49, respectively, in 2Q15.

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

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

Projections

Polaris Industries updated the following projections for fiscal 2016:

  • sales growth of mid-single-digit to high-single-digit percentages
  • EPS of $3.30–$3.80

Next, we’ll look at Newell Brands (NWL).

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