Polaris Inc PII

Polaris Earnings: Slower Shipments Dent Profits as Consumers and Dealers Stifled by Higher Rates

The fact that wide-moat Polaris’ full-year outlook was creamed by industry conditions rather than self-inflicted wounds failed to make the issue any less painful, with shares dropping 7% as a result. Due to a cautious consumer and dealer base still constrained by higher interest rates and inflation, the firm now estimates sales of $7.2 billion-$7.4 billion for 2024, down 17%-20%, well below the $8.28 billion of our preprint forecast. More dire was the anticipated EPS compression, which Polaris forecasts at $3.50-$4.00 for the full year versus $7.75-$8.25 prior, a roughly 50% haircut at the midpoint, largely dented by significant cost deleverage. Incorporating these reductions into our model, and a slower return to normal demand in 2025, we plan to reduce our $145 fair value estimate by a high-teens rate, still leaving shares undervalued. The wild card for Polaris remains around the duration of consumer duress, as we don’t believe a modest cut by the Federal Reserve in September is likely to stimulate demand in any meaningful way.