Polaris Downgraded: Turnaround Several Quarters Away

Wunderlich’ Rommel Dionisio has downgraded Polaris Industries Inc. (NYSE: PII) to Hold from Buy, saying earnings recovery is still several quarters away. The brokerage will become constructive once the company’s off-road vehicle (ORV) unit shows significant improvement.

The downgrade comes just two days after the analyst maintained his bullish tone on Polaris despite the company’s cautionary statements.

Though Polaris reported modest upside to consensus EPS forecasts for the fourth quarter, its 2017 EPS guidance fell short of Street view. During the quarter, Polaris was weighed down by delayed core ORV shipments, higher costs toward promotions and recent product recalls.

Analyst's Commentary

“Given a potential earnings turnaround appears to remain several quarters away, we recommend investors wait on the sidelines,” Dionisio wrote in a note.

Polaris initially targets the ORV/snowmobile segment to see a low single-digit sales decline for 2017 and projects the recent acquisition of Transamerican Auto Parts to contribute about $775 million–800 million in sales in 2017 and add about $0.25–$0.30 to 2017 EPS.

Meanwhile, Dionisio cut his 2017 forecast to reflect continued elevated promotions in ORV and the recent decision to shut down Victory motorcycles. The analyst trimmed his revenue forecast to $5.085 billion from $5.288 billion, and EPS view to $4.47 from $5.61.

Shares of Polaris closed Tuesday’s trading at $86.41. Dionisio also slashed the price target to $85 from $98.

Image Credit: By Cpl. Alexander Mitchell [Public domain], via Wikimedia Commons