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Polaris (PII - Free Report) is a Zacks Rank #5 (Strong Sell) that designs, engineers, manufactures, and markets power sports vehicles worldwide.
The stock started 2023 off on a positive note, with three straight earnings beats. This helped the stock start up 40% on the year, but since late July Polaris has plummeted and is now down 15% for the year.
So what happened?
The market sell-off did not help, but the sellers have been motivated by rising manufacturing costs and lack of consumer demand. This led to an earnings miss and a guidance cut that forced analysts to drop estimates.
About the Company
Polaris was founded in 1945 and is headquartered in Medina, MN.The company, which employs over 16,000 people, provides its products through dealers and distributors, and online.
It operates through three segments: Off-Road, On-Road, and Marine. Within these segments, Polaris products include snowmobiles, snow bikes, motorcycles, pontoon boats, side-by-sides, commercial vehicles, and more.
Polaris is valued at $5 billion and has a Forward PE of 9. PII holds Zacks Style Scores of “B” in Value, but “D” in both Growth. The stock pays a dividend of 3%.
Q3 Earnings
The stock started to trend lower well before the earnings report on October 24th. Investors anticipated trouble in September as the stock broke the 200-day moving average and they were right to be bearish.
Q3 earnings came in slightly below expectations, 0.37% below the Zacks consensus. The real trouble was realized when the company cut its FY23 guidance citing elevated manufacturing costs and an increasingly cautious consumer environment.
Margins were a big issue, coming in at 22.6% or -127bbs y/y.
The stock fell on the news, and in response, the company announced a $1B share buyback.
Estimates
The guide forced analysts to lower their numbers significantly.
Over the last 7 days, numbers for the current quarter plummeted from $3.28 to $2.61 or 20%. For the next quarter, earnings estimates have fallen from $189 to $1.45 or 23%.
Looking at the longer term, estimates are still falling, but the magnitude is lower. For next year, estimates have fallen from $10.55 to $9.18 over the last 60 days or almost 13%.
Technical Take
The stock is down over 35% off its July high of $138.49. Price is well below the 200-day moving average at $112. The 50-day is at $103 and the 21-day is at $95.
While a relief bounce may be overdue, the trend is decidedly bearish. Polaris is at levels not seen since 2020 and likely tests the $80 support level. This is where PII saw strong buying before the COVID crash.
In Summary
Investors have two things working against them when it comes to Polaris. First, the fundamentals are not there as costs rise and demand drops. Second, the technicals show us one of the worst-looking charts you can find.
Until one of these factors turns, investors should look elsewhere.
For those interested in the automotive space, a better option might be PACCAR (PCAR). The stock is a Zacks Rank #2 (Buy) and recently reported a 13% EPS beat.
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Bear of the Day: Polaris (PII)
Polaris (PII - Free Report) is a Zacks Rank #5 (Strong Sell) that designs, engineers, manufactures, and markets power sports vehicles worldwide.
The stock started 2023 off on a positive note, with three straight earnings beats. This helped the stock start up 40% on the year, but since late July Polaris has plummeted and is now down 15% for the year.
So what happened?
The market sell-off did not help, but the sellers have been motivated by rising manufacturing costs and lack of consumer demand. This led to an earnings miss and a guidance cut that forced analysts to drop estimates.
About the Company
Polaris was founded in 1945 and is headquartered in Medina, MN.The company, which employs over 16,000 people, provides its products through dealers and distributors, and online.
It operates through three segments: Off-Road, On-Road, and Marine. Within these segments, Polaris products include snowmobiles, snow bikes, motorcycles, pontoon boats, side-by-sides, commercial vehicles, and more.
Polaris is valued at $5 billion and has a Forward PE of 9. PII holds Zacks Style Scores of “B” in Value, but “D” in both Growth. The stock pays a dividend of 3%.
Q3 Earnings
The stock started to trend lower well before the earnings report on October 24th. Investors anticipated trouble in September as the stock broke the 200-day moving average and they were right to be bearish.
Q3 earnings came in slightly below expectations, 0.37% below the Zacks consensus. The real trouble was realized when the company cut its FY23 guidance citing elevated manufacturing costs and an increasingly cautious consumer environment.
Margins were a big issue, coming in at 22.6% or -127bbs y/y.
The stock fell on the news, and in response, the company announced a $1B share buyback.
Estimates
The guide forced analysts to lower their numbers significantly.
Over the last 7 days, numbers for the current quarter plummeted from $3.28 to $2.61 or 20%. For the next quarter, earnings estimates have fallen from $189 to $1.45 or 23%.
Looking at the longer term, estimates are still falling, but the magnitude is lower. For next year, estimates have fallen from $10.55 to $9.18 over the last 60 days or almost 13%.
Technical Take
The stock is down over 35% off its July high of $138.49. Price is well below the 200-day moving average at $112. The 50-day is at $103 and the 21-day is at $95.
While a relief bounce may be overdue, the trend is decidedly bearish. Polaris is at levels not seen since 2020 and likely tests the $80 support level. This is where PII saw strong buying before the COVID crash.
In Summary
Investors have two things working against them when it comes to Polaris. First, the fundamentals are not there as costs rise and demand drops. Second, the technicals show us one of the worst-looking charts you can find.
Until one of these factors turns, investors should look elsewhere.
For those interested in the automotive space, a better option might be PACCAR (PCAR). The stock is a Zacks Rank #2 (Buy) and recently reported a 13% EPS beat.