Stifel Downgrades Polaris, Warns Not To Chase Before April 21 Earnings Report

Shares of Polaris Industries Inc. (NYSE: PII) have appreciated 40 percent from the lows seen in late January, as compared to the 10 percent rise in the S&P 500.

Stifel’s Drew E. Crum downgraded the rating on the company from Buy to Hold.

Unappealing Risk-Reward

With earnings growth expected in the low double digits, Crum believes the risk-reward is less compelling at present.

“We'd look for management to convey a less subdued tone in conjunction with 1Q results but think this is largely reflected in valuation, and accordingly, prefer NOT to chase the shares ahead of this report,” the analyst stated.

While expressing a positive stand on the longer-term fundamentals, Crum remained cautious regarding the magnitude of a rebound in ORVs.

Challenges

According to the Stifel report, “Polaris appears to have withstood a barrage of external factors (competition/foreign exchange/"oil patch" weakness) that plagued '15 results, although these are still contemplated with '16 guidance.”

Crum pointed out that even if conditions were to improve sequentially, the growth trajectory going forward for this business would still remain substantially below the previous trend lines.

When the company reports its Q1 results on April 21, Crum expects management to raise the low end of the EPS guidance, driven by “1) some stabilization across powersports; 2) modest easing of foreign exchange headwinds; and 3) anticipation for easier comps in 2H.”

However, Crum also believes that these are already reflected in the stock valuation.