Polaris (PII) has always been known for its snowmobiles and off-road vehicles, and has successfully expanded into the realm of motorcycles. Polaris started its Victory line in the late 1990s to compete with Harley Davidson. The first Victory bike was built on July 4, 1998 — the Fourth of July. Then in 2011 the company acquired the Indian brand, which has been a hit for the stock from the beginning as PII shot up from $46 to $55 the day after the acquisition was announced. The stock has been trending up since, and recently notched an all-time high of $159.
With the economy on solid footing, the environment for snowmobiles, motorcycles and ATVs is good. I have PII on my radar, but haven’t liked it enough to get in just yet. And now Polaris is in a period of decelerating growth due to foreign exchange rates. Were it not for F/X Polaris be doing just fine.
One Year Chart
I’ve been watching PII for quite a few months, anticipating buying in, but the fundamentals for the company have recently deteriorated. Sales growth was a respectable 16% last qtr but profit growth just slowed from 27% to 9% and estimates show just 11% to 13% growth coming the next three qtrs. The company also just missed estimates — the first miss in over a year — and Annual Profit Estimates have come down two straight qtrs.
The company estimates F/X will hurt 2015 profits by $0.67. So the $7.44 estimate for this year would be $8.11 if it weren’t for the strong dollar. That would equate to a solid 22% profit growth year-over-year.
Fair Value
PII is selling right around its 2015 Fair Value. The stock has decent upside of if you buy now and hold until 2016. 14% upside to Fair Value is good but not great, especially when you consider 2016’s profit estimate peaked at $9.18 and has come down to $8.69 during the last couple of qtrs. Again, this was due to F/X.
Polaris yields around 1.5% and has an estimated long-term profit growth rate of 18%, so investors could get a 19 1/2% total annual return.
Sharek’s Take
Looking at the numbers my first impression was this stock wasn’t a good buy at this time. But when you consider the F/X and see that the “real” profit growth is around 22% and you also get a 1.5% dividend the stock looks tempting. I’m contemplating purchasing PII and with the market feeling a bit tired right now I will strongly consider getting in if it falls into the low-$130s.
View the Earnings Table here. View the Profit History here.View the Ten Year Chart here.
