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Stock Strategist Industry Reports

Off-Road Downshift Unlikely to Stall Leisure Firms

Acquisitions and new product categories should bolster long-term sales growth.

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We believe the powersports companies we cover-- Polaris Industries (PII),  Arctic Cat (ACAT), and  BRP (DOO)--offer attractive margins of safety for long-term investors. After near-term risks subside, we expect higher normalized EBIT margins and mid-single-digit sales growth on average for all three through the remainder of our 10-year forecast.

These companies have been under duress over the past 18 months owing to missteps in inventory management by certain participants and the effects of foreign exchange. We view the newest issue--weaker demand in key oil-producing regions--as a medium-term risk that could increase volatility materially for these businesses over the next one to three years, in tandem with the recovery of futures prices. In our opinion, these headwinds are temporary, and the North American players are solidly positioned to at least maintain share and improve margins, as both Arctic Cat and BRP are still executing on operational changes from which they stand to benefit.

Jaime M. Katz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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