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We maintain our Neutral recommendation on Pool Corp. (POOL - Analyst Report) based on weak seasonality and a cautious outlook for the fourth quarter and full year 2013. The company is expected to post its full year results in the second week of Feb 2014.

The company has shown improvement after remaining sluggish for some time owing to the housing market recovery. In Oct 2013, Pool delivered mixed third-quarter 2013 results, missing the Zacks Consensus Estimate for earnings by 6.9% but beating the same for revenues by 1.1%. Both earnings and revenues grew year over year. Following the mixed results, estimates for 2013 remained unchanged, while one estimate for 2014 moved up over the last 60 days.

Currently, the company expects the earnings momentum to remain sluggish as the company has fully utilized industry capacity. In fact, the company lowered its earnings guidance twice during 2013 in the wake of inclement weather in North America and Europe. Moreover, going forward, we expect weak seasonality to adversely affect fourth quarter revenues as sales are generally weak in the fourth quarter of the year.

However, the company’s long-term sound fundamentals offset these negatives to some extent. The presence of a limited number of vendors and a large number of dealers in the swimming pool industry gives the company a significant advantage as a distributor and offers scope for market share growth. Although rebound in consumer spending remains slow, the company remains well positioned to take advantage of market recovery and long-term growth opportunities in the industry. Moreover, we believe that maintenance of pools ensure a recurring revenue stream for the company even during the economic downturn.

Other Stocks to Consider

The company presently has a short-term Zacks Rank #2 (Buy). Other players in the retail industry, which look attractive at current levels, include Smith & Wesson Holding Corporation (SWHC - Snapshot Report), Sturm, Ruger & Co. Inc. (RGR - Snapshot Report) and Arctic Cat Inc. (ACAT - Snapshot Report). While Smith & Wesson Holding and Sturm, Ruger & Co. hold a Zacks Rank #1 (Strong Buy), Arctic Cat carries a Zacks Rank #2 (Buy).


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