POOL Banks on Expansion Initiatives Amid Rise in Costs
Pool Corporation POOL is likely to benefit from its expansion strategies, remodel and replacement activities and robust base business. However, rise in labor and delivery expenses along with coronavirus-related woes pose concern.
Let us discuss the factors that highlight why investors should hold on to the stock for the time being.
Factors Driving Growth
Pool Corp. continues to focus on expansion initiatives to drive revenues. Notably, the company is foraying into newer geographic locations, expanding in existing markets and launching innovative product categories that will boost its market share. To this end, the company is also trying to expand through various acquisitions. The company closed two of its acquisitions, namely Master Tile Network and Northeastern Swimming Pool Distributors, in February and September 2020, respectively. Meanwhile, in October 2020, the company acquired Jet Line Products, Inc., thereby adding three locations in New Jersey, three in New York, two in Texas and one in Florida. Notably, the acquisitions along with the new locations are likely to boost customer relationship and services, thereby enhancing the top line.
Notably, the company’s remodeling and replacement activities have been a key growth driver over the past few years. In fourth-quarter 2020, building materials sales improved 42% following growth of 29% in the third quarter on the back of strong demand in construction and remodel markets. Equipment and chemical sales increased 51% and 16% year over year, respectively, for the same quarter. The increase was primarily driven by solid demand for swimming pool heaters, pumps, lights, filters and pool remodeling. Notably, the company remains optimistic about its future performance as well. Despite the coronavirus pandemic and milder weather late in 2020, the company witnessed robust pool constructions. New pools construction increased from 80,000 in 2019 to 1,00,000 in 2020. The trend is expected to continue in the days ahead.
Also, the company has been benefitting from the solid performance of its base business segment. During fourth-quarter 2020, the company’s base business segment contributed 96.2% to total revenues. During the quarter, revenues from base business increased 38.7% year over year to $807.2 million.
Going forward, the company expects robust earnings growth in 2021. It anticipates earnings per share in the range of $9.01 to $9.51, up from adjusted earnings of $8.42 in 2020. Notably, the company anticipates robust demand to continue in 2021. Moreover, in the past 30 days, earnings estimates for 2021 have witnessed upward revisions, reflecting analyst optimism regarding the company’s growth potential.
In the past six months, shares of Pool Corp. have gained 12.1% compared with the industry’s 15.1% growth. Notably, the company’s operations have been negatively impacted by the coronavirus pandemic. Going forward, risks stemming from resurgence of COVID-19 cases in some markets, new stay-at-home orders or government mandates and unfavorable economic conditions triggered by the crisis are likely to negatively impact the business. The company stated that it expects tougher year-over-year comparisons and industry capacity constraints for the second half of 2021.
Moreover, the company is continuously shouldering increased expenses, which have been detrimental to margins. Notably, higher labor and delivery costs and investments in information technology systems and hardware are leading to higher expenses. During fourth-quarter 2020, cost of sales surged 42.8% from the prior-year quarter’s number. Selling and administrative expenses also increased 20.9% year over year. We believe that the company has to work hard toward cutting expenses in order to achieve high margins.
Zacks Rank & Key Picks
Pool Corp carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the same space include MasterCraft Boat Holdings, Inc. MCFT, Brunswick Corporation BC and Clarus Corporation CLAR. MasterCraft Boat Holdings sports a Zacks Rank #1, while Brunswick and Clarus carry a Zacks Rank #2 (Buy).
MasterCraft Boat Holdings has a trailing four-quarter earnings surprise of 44.2%, on average.
Brunswick and Clarus’ 2021 earnings are expected to rise 25.6% and 41.4%, respectively.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.