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Here's Why You Should Retain Pool Corp (POOL) Stock Now

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Pool Corporation (POOL - Free Report) is likely to benefit from its expansion efforts, remodeling and replacement activities and capacity-creation initiatives. However, inflationary pressures and coronavirus-related woes are a concern.

Let us discuss the factors that highlight why investors should retain the stock for the time being.

Factors Driving Growth

Pool Corp focuses 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. During first-quarter 2022, the company boosted its presence in the DIY market segment with the acquisition of Pinch A Penny. During the quarter, POOL opened two new franchise locations. The company stated that it initiated work on chemical sourcing and product management and that it is reporting brisk store traffic and solid demand across the platform. Given the synergies coupled with its robust development pipeline, the company expects the initiative to drive growth in the upcoming period. The company anticipates acquisitions in new locations to contribute 5-6% to POOLCORP’s revenue growth in 2022.

Pool Corp continues to benefit from remodeling and replacement activities. During first-quarter 2022, building materials sales increased 29% year over year. The company is benefiting from strong demand in construction and remodel markets. Equipment and chemical sales increased 18% and 58% year over year, respectively, in the first quarter. The upside was primarily driven by solid demand for heaters, pumps, filters, lighting and automation. Chemical sales were primarily driven by solid demand and improved supply. 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. Benefits from new products (such as automation and the connected pool) and strengthening of the southern migration are likely.

The company is gaining from solid demand, healthy contractor backlogs and capacity-creation initiatives. This and a solid performance of base business bode well. In first-quarter 2022, the company’s Base Business segment contributed 94% to total revenues. During the quarter, revenues from Base Business increased 25.6% year over year to $1,328.1 million. Elevated demand for outdoor living products benefitted the company. The segment's operating margins increased 430 basis points year over year, backed by its supply-chain management initiatives.

Given the ability to drive organic growth and manage cost structure through execution and capacity creation, the company raised its guidance for 2022. The company projects 2022 earnings per share (EPS) in the range of $18.34-$19.09, up from the prior estimate of $17.19-$17.94. It anticipates sales to be in line with the high end of the previous net sales guidance of 17-19%. The company anticipates positive demand trends to continue in 2022.

In the past year, shares of Pool Corp have fallen 26.2% compared with the industry’s 65.5% decline.

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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. Inflationary cost increases in compensation, healthcare, freight and rent are leading to higher expenses. During the first quarter, the cost of sales came in at $965.5 million, up 27.1% from the prior-year quarter’s levels. Selling and administrative expenses increased 22.9% year over year to $211.5 million. We believe the company must work hard toward cutting expenses to achieve high margins. For 2022, the company anticipates inflationary pressures to be at 10%.

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 in the Zacks Consumer Discretionary sector are Civeo Corporation (CVEO - Free Report) , Funko, Inc. (FNKO - Free Report) and Bluegreen Vacations Holding Corporation (BVH - Free Report) .

Civeo sports a Zacks Rank #1 at present. The company has a trailing four-quarter earnings surprise of 1,565.1%, on average. Shares of the company have soared 48.9% in the past year.

The Zacks Consensus Estimate for CVEO’s 2022 sales and EPS suggests growth of 12.5% and 1,450%, respectively, from the year-ago period’s levels.

Funko carries a Zacks Rank #2 (Buy). FNKO has a trailing four-quarter earnings surprise of 78.7%, on average. Shares of the company have declined 6.1% in the past year.

The Zacks Consensus Estimate for Funko’s current financial year sales and EPS suggests growth of 26.8% and 31%, respectively, from the year-ago period’s reported levels.

Bluegreen Vacations carries a Zacks Rank #2. BVH has a trailing four-quarter earnings surprise of 85.9%, on average. The stock has surged 33.6% in the past year.

The Zacks Consensus Estimate for BVH’s current financial year sales and EPS indicates growth of 11.2% and 35.1%, respectively, from the year-ago period’s reported levels.