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We reaffirm our Neutral recommendation on Pool Corp. (POOL - Analyst Report) 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 (SWHC - Snapshot Report) and Sturm, Ruger & Co. Inc. (RGR - Snapshot Report) carrying a Zacks Rank #1 (Strong Buy) and  Brunswick Corp. (BC - Snapshot Report) carrying a Zacks Rank #2 (Buy).
 

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