On Sep 26, 2014, we issued an updated research report on Pool Corp. (POOL).
On Jul 17, the Louisiana-based wholesale distributor of swimming pool supplies, equipment and related products announced mixed second-quarter earnings. Though earnings and revenues missed the Zacks Consensus Estimate by 0.6% and 1.1%, respectively, it grew year over year by 16% and 7%, respectively.
We are encouraged by Pool’s sound long-term fundamentals. The presence of a limited number of vendors and a large number of dealers in the swimming pool industry gives the company a significant advantage as a distributor and offers ample opportunity to grow its market share.
Despite restrained consumer spending, the company remains well positioned to take advantage of the overall market recovery and long-term growth opportunities in the industry. Moreover, we believe that maintenance of pools ensures a recurring revenue stream for the company even during economic downturn. We also commend the company’s healthy capital deployment initiatives, which will boost investors’ confidence in the stock.
However, the weak housing market which is affecting the company’s green business — construction and installation of new pools and landscaping — is a concern, in our view. Higher interest rates have weakened net order trend in the housing market in the past 2-3 quarters compared with the first half of 2013 which in turn is hurting demand for Pool’s products and services.
We are also concerned about the seasonal nature of the company’s business. Although the company is poised to benefit from the favourable weather trends in the upcoming quarters, inclement weather at the end of the year might affect sales. Also, unseasonably late warming trends in spring or early cooling trends at the end of the year might weigh on the company’s revenues.
Other Stocks to Consider
Better-performing stocks in the same sector include Malibu Boats, Inc. (MBUU), Performance Sports Group Ltd. (PSG) and Polaris Industries Inc. (PII).
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