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Here's Why You Should Retain Pool Corp (POOL) Stock Now
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Shares of Pool Corporation (POOL - Free Report) have gained 33.8% in the past year against the industry’s decline of 51.2%. The company is benefiting from its base business, remodeling and replacement activities. Moreover, its focus on expansion initiatives bodes well. However, a rise in freight expenses and coronavirus-related woes is a concern.
Let us discuss the factors that highlight why investors should retain the stock for the time being.
Factors Driving Growth
Pool Corp is gaining 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 benefited the company. The segment's gross margins improved 250 basis points year over year, backed by its supply-chain management initiatives.
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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 higher 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 new products (such as automation and the connected pool) and strengthening of the southern migration are likely.
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.
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 (EPS) 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 and increased maintenance and repair activities.
Concerns
The COVID-19 pandemic has significantly impacted economic activity and markets throughout the world. Going forward, risks stemming from the resurgence of COVID-19 cases in some markets, new stay-at-home orders or government mandates and unfavorable economic conditions triggered by the crisis could affect the business.
Pool Corp is continuously shouldering higher expenses, which are denting margins. Notably, inflationary cost increases in compensation, healthcare, freight and rent are leading to higher expenses. During third-quarter 2021, the cost of sales increased 19.6% from the prior-year quarter’s number. Selling and administrative expenses also increased 14.2% year over year. We believe that the company has to work hard toward cutting expenses to achieve high margins.
Guess sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 97%, on average. Shares of Guess have increased 8.4% in the past three months.
The Zacks Consensus Estimate for GES’s 2022 sales and EPS suggests growth of 38.6% and 4,342.9%, respectively, from the year-ago period’s levels.
Crocs sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 41.6%, on average. Shares of Crocs have increased 53.9% in the past year.
The Zacks Consensus Estimate for CROX’s 2022 sales and EPS indicates a rise of 48.8% and 25.8%, respectively, from the year-ago period’s levels.
RCI Hospitality sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 67.7%, on average. Shares of RCI Hospitality have surged 82.9% in the past year.
The Zacks Consensus Estimate for RICK’s 2022 sales and EPS suggests growth of 34.9% and 22.1%, respectively, from the year-ago period’s levels.
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Here's Why You Should Retain Pool Corp (POOL) Stock Now
Shares of Pool Corporation (POOL - Free Report) have gained 33.8% in the past year against the industry’s decline of 51.2%. The company is benefiting from its base business, remodeling and replacement activities. Moreover, its focus on expansion initiatives bodes well. However, a rise in freight expenses and coronavirus-related woes is a concern.
Let us discuss the factors that highlight why investors should retain the stock for the time being.
Factors Driving Growth
Pool Corp is gaining 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 benefited the company. The segment's gross margins improved 250 basis points year over year, backed by its supply-chain management initiatives.
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 higher 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 new products (such as automation and the connected pool) and strengthening of the southern migration are likely.
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.
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 (EPS) 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 and increased maintenance and repair activities.
Concerns
The COVID-19 pandemic has significantly impacted economic activity and markets throughout the world. Going forward, risks stemming from the resurgence of COVID-19 cases in some markets, new stay-at-home orders or government mandates and unfavorable economic conditions triggered by the crisis could affect the business.
Pool Corp is continuously shouldering higher expenses, which are denting margins. Notably, inflationary cost increases in compensation, healthcare, freight and rent are leading to higher expenses. During third-quarter 2021, the cost of sales increased 19.6% from the prior-year quarter’s number. Selling and administrative expenses also increased 14.2% year over year. We believe that the company has to work hard toward cutting expenses to achieve high margins.
Zacks Rank & Key Picks
Pool Corp currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks from the Zacks Consumer Discretionary sector include Guess, Inc. (GES - Free Report) , Crocs, Inc. (CROX - Free Report) and RCI Hospitality Holdings, Inc. (RICK - Free Report) .
Guess sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 97%, on average. Shares of Guess have increased 8.4% in the past three months.
The Zacks Consensus Estimate for GES’s 2022 sales and EPS suggests growth of 38.6% and 4,342.9%, respectively, from the year-ago period’s levels.
Crocs sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 41.6%, on average. Shares of Crocs have increased 53.9% in the past year.
The Zacks Consensus Estimate for CROX’s 2022 sales and EPS indicates a rise of 48.8% and 25.8%, respectively, from the year-ago period’s levels.
RCI Hospitality sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 67.7%, on average. Shares of RCI Hospitality have surged 82.9% in the past year.
The Zacks Consensus Estimate for RICK’s 2022 sales and EPS suggests growth of 34.9% and 22.1%, respectively, from the year-ago period’s levels.