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Bull of the Day: Polaris Industries

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Recent headlines have highlighted the issues some American companies are having with recent tariffs imposed on imports and the retaliatory tariffs imposed by our trading partners on goods exported from the U.S. to other markets.

Harley Davidson (HOG) has been specifically singled out by President Trump for its decision to shift some manufacturing overseas in order to sell its motorcycles to European markets while avoiding approximately $2,200 per vehicle in tariffs.

While sales of motorcycles and other recreational equipment are on the rise in the U.S. thanks to a strong economy and record-low unemployment, manufacturers who have the smallest reliance on imported raw materials or sales outside the country will be in an advantaged position to continue to operate normally with minimal regard for tariffs, and could even gain market share and/or pricing power versus imported products.

Polaris Industries (PII - Free Report) manufactures and sells Powersports equipment primarily in the U.S. including Motorcycles, Off Road ATVs, Snowmobiles and a wide range of parts and accessories. Through its brands Polaris, Ranger RZR and Indian motorcycles, Polaris is far and away the leader in sales of Powersports equipment in North America.

It’s worth noting that Indian Motorcycles – a revival of an iconic American brand produced from 1901 to 1953 – makes large V-Twin road cycles that compete directly with Harley Davidson’s products.

Polaris operates 16 In-House manufacturing facilities worldwide, 10 of which are in the U.S., as well as 1 in Mexico, 3 in France, 1 in Poland and 1 in China. In the current environment, managers of public companies have a difficult job weighing the cost benefits of manufacturing overseas, while minimizing the negative effects of taxes and tariffs – and now, apparently even avoiding the ire of the President.

Polaris recently opened a new manufacturing plant in Alabama and announced plans for a new distribution center in Nevada.

Their diverse manufacturing footprint allows Polaris to continue producing good for the U.S. in the U.S., while serving while serving markets abroad – which are growing at an annual rate of 27% - with goods manufactured in jurisdictions which minimize tariffs.

In the most recent quarterly report, Polaris turned in its 9th straight earnings beat, posting $1.06/share versus the Zacks Consensus Estimate of $0.86/share. The company also raised sales and earnings guidance for 2018, raised its estimate for gross margins and lowered estimates for operating expenses.

Seven analyst upward revisions in the past 30 days have the consensus estimate for 2018 at $6.46/share, even higher than Polaris’ own guidance of $6.05-$6.20/share. Apparently the analysts are getting used to Polaris beating their predictions.

Polaris is a Zacks Rank #1 (Strong Buy).

In a time of uncertainty regarding international trade, Polaris is selling high-quality, in-demand, American-made goods to the U.S. market. It’s a comfortable position to be in.

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