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Pool Upgraded to Outperform

by Zacks Equity Research

January 13, 2012 | Comments : 0 Recommended this article: (0)

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We have upgraded our recommendation on Pool Corp. (POOL - Analyst Report) to Outperform from Neutral based on the company’s strong market position and earnings power. According to management, earnings per share will grow at a 20% rate per year for the next five years considering a reasonable macroeconomic recovery.

Based in Covington, Louisiana, Pool Corp. is the world's largest wholesale distributor of swimming pool supplies, equipment and related products. It controls approximately one-third of the pure-pool domestic market share sold through distribution.

We believe the long-term business prospect of Pool remains exciting given the potential for significant sales recovery on the build-up of deferred replacement and retrofit activity. Although a rebound in consumer spending remains slow, the company remains well positioned to take advantage of market recovery and the long-term growth opportunities in the industry.

Amid a tough business environment, Pool’s revenue has been marching ahead. Coupled with this, stringent cost-containment initiatives are likely to pave the way for Pool’s future earnings growth. Base business operating expenses are expected to be muted in the fourth quarter of fiscal 2011 and beyond.

We also believe the turnaround of Green business is a major respite for the company. After suffering since the economic downturn, Green business started showing improvement from the first quarter of fiscal 2011. Since then, the business is generating positive results.

Agreement - Estimate Revisions

Over the last 7 days, one out of nine analysts raised the earnings estimate for the fourth quarter of fiscal 2011 as well as fiscal 2011 and 2012. While the magnitude of estimate was increased by a penny to $1.66, it remained same for the fourth quarter and fiscal 2011 in the last 7 days.

The company’s competitors include Arctic Cat Inc. (ACAT - Snapshot Report) and Johnson Outdoors Inc. (JOUT - Snapshot Report). Pool currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.

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