Pool Downgraded to Neutral

We recently downgraded our long-term recommendation on Pool Corp. ( POOL - Analyst Report ) from Outperform to Neutral apprehending sluggish business in the next two quarters due to seasonal headwinds.

Pool’s business is susceptible to changes in weather. While abnormally hot and dry conditions are generally favorable for the company's operations, abnormally cool or rainy weather patterns can adversely affect sales. Normally, sales are mostly benefited by weather conditions in the second quarter of a calendar year. In fact, Pool historically delivers a weak performance in the first and fourth quarter of every year.

Therefore, with the company operating into the fourth quarter, which is seasonally the weakest, sales will likely register a sequential decline. The company is likely to report a loss in the fourth quarter.

Barring the seasonal nature of its business, the company has solid long-term fundamentals. Pool is a recognized leader in the swimming pools industry. The potential for market share gain is significant and cost-containment initiatives augur well for the business.

Amid a tough business environment in new pool constructions and faltering consumer confidence, Pool’s revenue has been growing consistently.

No Estimate Revisions

There was no estimate revision in the last 30 days period for either quarters resulting in no change in magnitude of estimate as well. For the upcoming fourth quarter of 2012, the Zacks Consensus Estimate is pegged at a loss of 19 cents per share while for the first quarter of 2013, the estimate stands at 9 cents a share.

Pool, which competes with the likes of Johnson Outdoors Inc. ( JOUT - Snapshot Report ) , holds a Zacks #3 Rank (short-term Hold rating).