A Leader in Powersports--on Sale

More than 65 years ago, Polaris started to build its reputation and brand by producing snowmobiles. In the decades since, the company has expanded into all-terrain vehicles, motorcycles, people movers, boats--and, in short order, electric vehicles, building a recreational and utility vehicle powerhouse. Holding leading market share positions in the categories in which it operates has ensured the company's brand remains relevant. We believe that when consumers replace or think about purchasing products in the snowmobile and off-road categories, they tend to want the best products with the newest technology, which is what Polaris provides, yielding stability in pricing and solid brand perception.

The company's favorable brands, innovative products, and lean manufacturing support the firm's wide economic moat. Going forward, we expect Polaris will continue to capitalize on its research and development, solid quality, operational excellence, and acquisition strategy to grow demand. Polaris has historically generated topnotch returns on invested capital, including goodwill, and should be able to deliver around 45% metrics by 2030, well above our weighted average cost of capital assumption.

While the company is facing near-term headwinds in the form of inflation and logistics costs as well as supply chain constraints, we think demand stemming from product launches and dealer backfill will allow Polaris to grow sales and earnings per share over the long term. While the second half of 2021 could offer a slower pace of retail sales growth as it laps robust second-half 2020 demand, strong wholesale shipments are likely to persist into 2022 in order to close the product shortage gap at retail. Over the next decade, we surmise the company could achieve average sales growth of 5% and earnings per share growth of 11%.

We think shares are worth $173 apiece.

Analyst Jaime Katz provided the research behind this segment.