We reaffirm our Neutral recommendation on
) following an appraisal of its fourth quarter 2012 results.
While the company's loss per share and revenues in its
recently-concluded fourth quarter were better than the Zacks
Consensus Estimate as well as the year-ago figure, management's
guidance of a slowdown in bottom line in the coming years and
seasonal headwinds in the upcoming quarter make us cautious at
the current level.
Why the Reiteration?
Pool's fourth-quarter 2012 loss per share was narrower than the
Zacks Consensus Estimate as well as the year-ago level loss per
share. The improvement in the bottom line was mainly driven by a
solid top-line, which increased 13.5% year over year and was
ahead of the Zacks Consensus Estimate. Strong sales from
the swimming pool side of business aided the top line.
Although rebound in consumer spending remains slow at the current
level, the company remains well positioned to take advantage of
market recovery and long-term growth opportunities in the
industry. Owing to its leading market position, Pool is likely to
be the main beneficiary of growth in the industry.
We also appreciate the steady turnaround of the Green or
irrigation side of business. The Green business struggled in the
past as its market shrank more than 60% due to sluggish new
residential construction activity. However, the segment has now
managed to move ahead on account of improvement in the housing
business and due to several initiatives taken by management.
Despite sturdy fundamentals, there are some drags that keep us on
the sidelines at the current level. Although, the company
delivered solid earnings per share (EPS) growth in 2012 with EPS
increasing more than 20% for three years in a row, management
expects the momentum to slow down, going ahead as the company
fully utilized industry capacity.
Additionally, Pool's business is susceptible to changes in
weather and its upcoming first quarter is seasonally weak.
Further, the first quarter of 2013 will face tough year-over-year
comparisons due to an early start of warm weather in the
comparable period last year.
Other Stocks to Consider
Some others players in the leisure and recreational products
industry looking attractive at current levels include Smith &
Wesson Holding Corp (
) and Sturm, Ruger & Co. Inc. (
) carrying a Zacks Rank #1 (Strong Buy) and Brunswick Corp.
) carrying a Zacks Rank #2 (Buy).
BRUNSWICK CORP (BC): Free Stock Analysis
POOL CORP (POOL): Free Stock Analysis Report
STURM RUGER&CO (RGR): Free Stock Analysis
SMITH & WESSON (SWHC): Free Stock Analysis
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