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Pool Corp (POOL) Shares Rally 50% YTD: More Upside Left?

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Pool Corporation (POOL - Free Report) is poised to benefit from its remodel and replacement activities as well as robust base business. Also, focus on expansion initiatives bodes well.

So far this year, shares of Pool Corp have gained 50.4% against the industry’s decline of 34.4%. The price performance was backed by solid earnings surprise history. Pool Corp’s earnings surpassed the Zacks Consensus Estimate in all of the trailing four quarters. Earnings estimates for 2021 and 2022 have moved up 7.5% and 11.4%, respectively, in the past 60 days. This positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Factors Driving Growth

Focus on Remodeling & Replacement Activities: Pool Corp continues to benefit from remodeling and replacement activities. During third-quarter 2021, building materials sales increased 24% year over year. The company is benefitting from strong demand in construction and remodel markets. Equipment and chemical sales increased 23% and 10% year over year, respectively, in the third quarter. The upside was primarily driven by higher demand for heaters, pumps, filters, lighting, automation and pool remodeling. Chemical sales benefitted from increased trichlor product pricing. The company believes that the flexibility of the new work-from-home norm is likely to act as a catalyst for investments in home improvements. Also, benefits from products (such as automation and the connected pool) and strengthening of the southern migration are likely.

Solid Base Business: The company is benefitting from the solid performance of its base business segment. In third-quarter 2021, the company’s Base Business segment contributed 95.6% to total revenues. During the quarter, revenues from Base Business increased 18.6% year over year to $1,348.8 million. Elevated demand for outdoor living products along with favorable weather conditions benefitted the company. The segment's gross margins improved 250 basis points year over year, backed by its supply-chain management initiatives.

Expansion Efforts: Pool Corp continues to focus on expansion initiatives to boost revenues. The company is foraying into newer geographic locations to expand in existing markets and launch innovative product categories to boost market share. It is trying to expand through various acquisitions. In this regard, the company is assimilating the TWC Distributors acquisition, thereby expanding the Florida market. The company expanded its Horizon network in Florida and California markets. So far this year, the company opened 10 new locations. Also, the company completed two strategic acquisitions during third-quarter 2021. We believe that the acquisitions and the new locations are likely to boost customer relationships and services, thereby enhancing the top line. During the third quarter, acquisitions contributed 5% to the company’s sales growth.

Upbeat Views: Given the company’s ability to drive organic growth and manage cost structure through execution and capacity creation, the company raised its 2021 guidance. Pool Corp anticipates 2021 earnings per share in the range of $14.85-$15.35, up from the prior estimate of $13.75-$14.25. The company anticipates robust demand to continue backed by a strong housing market, new product launches as well as increased maintenance and repair activities.

Other Key Picks

Some other top-ranked stocks in the Consumer Discretionary sector are Hilton Grand Vacations Inc. (HGV - Free Report) , Bluegreen Vacations Holding Corporation (BVH - Free Report) and Camping World Holdings, Inc. (CWH - Free Report) .

Hilton Grand Vacations sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 411.1%, on average. Shares of the company have increased 56.7% so far this year.

The Zacks Consensus Estimate for Hilton Grand Vacations’ current financial year sales and earnings per share (EPS) suggests growth of 222.13% and 170.8%, respectively, from the year-ago period’s levels.

Bluegreen Vacations flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 695%, on average. Shares of the company have surged 118.1% so far this year.

The Zacks Consensus Estimate for Bluegreen Vacations’ current financial-year sales and EPS indicates a rise of 27.5% and 199.3%, respectively, from the year-ago period’s levels.

Camping World carries a Zacks Rank #2. The company benefits from the launch of a fresh peer-to-peer RV rental marketplace and a mobile service marketplace. It has been investing heavily in product development.

Camping World has a trailing four-quarter earnings surprise of 70.9%, on average. Shares of the company have appreciated 71.8% so far this year. The Zacks Consensus Estimate for CWH’s financial-year sales and EPS suggests growth of 25.9% and 77.1%, respectively, from the year-ago period’s levels.