Pool Corporation POOL is currently one of the best-performing leisure stocks in the United States and has the potential to carry on the momentum in the near term as well. Therefore, if you haven’t taken advantage of the share price appreciation yet, it’s time you add this Zacks Rank #2 (Buy) stock to your portfolio. Shares of the company have outperformed the industry in the past six months. The stock has rallied 15.8% compared with the industry’s growth of 5.7%.
Moreover, upward revision in earnings estimates for 2018 reflects analysts’ confidence in the company’s future earnings potential. Over the past two months, earnings estimates for the year have inched up 0.9%. The company also delivered positive earnings surprises in three of the trailing four quarters, with the average beat being 7.77%.
Notably, per our VGM Score that identifies the most attractive value, growth and momentum characteristics, Pool Corp has a Momentum Score of B, suggesting that this is the appropriate time to invest in the stock.
Strong Brand & Expansion Aid Top-Line Growth
Pool Corp’s industry-leading position helps the company in capturing market share from regional pool and irrigation distributors, driving higher rebates, better sourcing, IT resources, and product availability. Meanwhile, the company is focused on strategic expansion. It plans to foray in newer geographic locations, expand in the existing markets and launch new product categories that will boost its market share. To this end, Pool is also trying to expand through various acquisitions. The company completed six acquisitions in the last year. We believe that the company’s strong brand recognition and relentless expansion drive its revenues. In the first quarter of 2018, net sales grew 7.2% year over year. Subsequently, the Zacks Consensus Estimate for 2018 sales is pegged at $3 billion, reflecting 7.7% growth from 2017.
Continual Enhancement of Shareholders’ Value
Pool Corp’s market-leading position offers a cost advantage, allowing it to generate higher return on investment than the smaller companies. Moreover, the company is committed toward returning more value to its shareholders. Apart from the share buybacks, there is a dividend distribution program in place. Since 2004, management has been consistently raising its dividend. Also recently, the company’s share repurchase program was expanded by $150 million. For 2018, the company expects to buy back one million shares, given its strong cash flow position. The share-repurchase initiatives reflect the company’s confidence in its fundamentals. At the same time, the buybacks will help the company reduce outstanding share count, thereby increasing its earnings per share and return on equity. Such healthy capital deployment initiatives would also boost investors’ confidence in the stock.
Notably, the company delivered a return on equity (ROE) of 74.42% in the trailing 12 months versus the industry’s growth of 15.78%. This supports its growth potential and indicates that the company reinvests more efficiently compared to its peers.
Arguably, earnings growth is of the utmost importance for determining a stock’s potential, as surging profit levels often indicate solid prospects (and stock price gains). In 2018, Pool Corp’s earnings per share are expected to grow 38.6%.
Favorable Housing Market & Existing Pools Drive Profitability
Pool Corp has been benefitting from a flourishing housing market of late. Apart from expansion, the company generates a large portion of its earnings from the existing pools. More than half of its gross profits are generated from products related to the maintenance and repair of pools, while the remaining is derived from the construction and installation of new pools, and landscaping. Over the past five years, the pool industry has been showing signs of recovery, mostly supported by the gradual improvement in remodeling and replacement activity. The company’s existing pool business witnessed revenue growth throughout 2015, 2016, and 2017, mainly aided by higher replacement activities, and the trend is expected to prevail, going forward.
In the first quarter, building materials maintained strong performance of 9% growth, with 15% improvement witnessed in the commercial category. In addition, pool equipment growth was 7%. The growth in these product categories is expected to continue positioning the company for strong growth in the near term.
Other Stocks to Consider
Other top-ranked stocks from the leisure space include Johnson Outdoors JOUT, Malibu Boats MBUU and Callaway Golf ELY. Johnson Outdoors and Malibu Boats sport a Zacks Rank #1 (Strong Buy), whereas Callaway Golf carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Johnson Outdoors, Malibu Boats and Callaway Golf’s earnings for 2018 are expected to grow 28.3%, 56.4% and 52.8%, respectively.
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