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Polaris Inc PII

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Morningstar’s Analysis

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Polaris Still Poised for Growth in 2022, Despite Continued Supply Chain Headwinds; Shares Attractive

Jaime M. Katz, CFA Senior Equity Analyst

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.

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Company Profile

Business Description

Polaris designs and manufactures off-road vehicles, including all-terrain vehicles and side-by-side vehicles for recreational and utility purposes, snowmobiles, and on-road vehicles, including motorcycles, along with the related replacement parts, garments, and accessories. The firm entered the aftermarket parts segment in 2016, tying up with Transamerican Auto Parts and then tapped into boats through the acquisition on Boat Holdings in 2018, offering exposure to new segments of the outdoor lifestyle market. Polaris products retailed through 2,300 dealers in North America and through 1,400 international dealers as well as more than 30 subsidiaries and 90 distributors in more than 120 countries outside North America at the end of 2020.

2100 Highway 55
Medina, MN, 55340
T +1 763 542-0500
Sector Consumer Cyclical
Industry Recreational Vehicles
Most Recent Earnings Sep 30, 2021
Fiscal Year End Dec 31, 2020
Stock Type Cyclical
Employees 15,000