Analyst Note
| Jaime M. Katz, CFA |We don’t plan any material change to our $172 fair value estimate for wide-moat Polaris outside of lowering our long-term tax rate to 23% (from 27%) as we now view a U.S. hike as unlikely. Fourth-quarter results were largely in line with our expectations; sales of $2.17 billion (up 1%) were modestly better than our $2.1 billion forecast, constrained by the lack of finished goods availability. Adjusted EPS of $2.16 were also slightly better than our $2.03 estimate excluding the divested GEM and Taylor-Dunn lines. Unfortunately, the adjusted gross margin remained under pressure, down 500 basis points in the quarter (to 20.6%) as the firm continued to face inflation and supply chain headwinds. While gross margin declines would generally raise concern regarding the firm’s ability to raise prices, we believe the pressure is currently due to external pressures, as average selling prices are still on the rise.