We are reverting to a Neutral recommendation on Pool Corp. (POOL) from Underperform as the company has solid long-term potential. However, weak seasonality in the second half of the year keeps us on the sidelines at the current level.
Why Back to Neutral?
Owing to its market leading position, Pool is likely to be the main beneficiary of the industry growth. The company is the only truly national wholesale distributor focused on the swimming pool industry in the U.S. The company’s potential for market share growth is significant.
Going forward, management believes that there is potential for a significant sales recovery due to the build-up of deferred replacement and retrofit activity. Although rebound in consumer spending remains slow, the company remains well positioned to take advantage of market recovery and long-term growth opportunities in the industry.
Another tailwind for the company is the steady turnaround of its Green business, which was once struggling. This will augur well for the company going ahead.
Despite these enthusiastic facts, some concerns prevent us from being too optimistic on the stock. Management noted that, despite improvements, new pool construction levels are still down by almost 70% compared to peak levels and 60% lower than normal levels.
Pool’s business is susceptible to changes in weather. Also, the company is currently in its third quarter and we apprehend weak seasonality to adversely impact sales, which will further aggravate in the fourth quarter. Pool currently has a Zacks Rank #3 (Hold).
Other Stocks to Consider
Others players in the leisure and recreational product services industry, which look attractive at current levels include Johnson Outdoors Inc. (JOUT), Sturm, Ruger & Co. Inc. (RGR) and Arctic Cat Inc. (ACAT). While Johnson and Sturm, Ruger & Co. have a Zacks Rank #1 (Strong Buy), Arctic Cat has a Zacks Rank #2 (Buy).