Pool Corp. (POOL) Raised to Buy: Should You Add the Stock?
On May 16, we upgraded swimming pool and lifestyle product maker Pool Corporation POOL by a notch to a Zacks Rank #2 (Buy).
Last month, the company reported strong first-quarter 2017 results on the back of market share gains and warmer than average temperatures. Both the top and the bottom line surpassed the Zacks Consensus Estimate and increased year over year. Additionally, Pool raised its 2017 earnings per share outlook.
Notably, shares of the company outperformed the Zacks categorized Leisure and Recreation Products industry over the past one year. The stock was up 37.2%, while the industry gained less than 10% during the same time period.
Favorable Macro Environment
Pool generates more than half of its gross profits from products related to the maintenance and repair of pools, while the remainder is derived from the construction and installation of new pools and landscaping. Maintenance and upkeep of pools ensure a steady revenue stream for the company even during economic downturns.
Meanwhile, the 2017 outlook for the U.S. homebuilding industry is quite compelling given affordable interest rates, rising new home sales, , and tight inventory indicating pent-up demand. Moreover, stronger consumer discretionary spending evidenced by the company’s increase in sales of pool construction materials and ancillary equipment and supplies as consumers continue to invest in enhancing their outdoor living spaces along with a tight supply situation, point to consistently robust demand for 2017.
Overall, trends continue to benefit from steady gains in consumer-discretionary spending as homeowners increasingly look to remodel and replace older pools, and migrate to higher-end products. Indicators for new pool construction also remain favorable with increasing numbers of millenials purchasing homes, increasing home values and single-family homeowner equity, and expectations for reduced banking regulations leading to increased capital available to homeowners. Moving ahead, all of these are anticipated to drive continued growth in new pool construction.
Other Factors
Pool’s market leading position offers a cost advantage. Although there are numerous competitors and low barriers to entry, the scale of operations offers cost advantages to the company allowing it to build stronger relationships with customers.
Consequently, the company’s plans to penetrate newer geographic locations, expand in existing markets, and launch new product categories are expected to further boost its market share.
Notably, Pool is also committed toward returning more value to shareholders. Apart from share buybacks, there is a dividend distribution program in place via which the company has raised its dividend 12 times since 2004. These initiatives depict the company’s efforts to enhance shareholders’ value.
Some Concerns
Pool’s business is susceptible to adverse changes in weather such as unseasonal rainfall and below-average temperatures, which put pressure on the top line. Moreover, the company’s international presence raises some concerns in the form of unfavorable political and regulatory conditions in the market where it functions as well as negative currency translations.
Stocks to Consider
Here are some additional top-ranked stocks in the same space that you can also consider:
Sturm, Ruger & Company, Inc. RGR witnessed current quarter and current year estimates rise 7.1% and 7.3%, respectively, in the past two months. The stock carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Callaway Golf Company ELY witnessed current quarter and current year estimates rise 81.3% and 44%, respectively, over the past month. The company currently holds a Zacks Rank #2.
West Marine, Inc. WMAR is another Zacks Rank #2 company. Its 2017 earnings growth estimate is 34.6% compared with the industry average of 13.8%.
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Pool Corporation (POOL): Free Stock Analysis Report
Sturm, Ruger & Company, Inc. (RGR): Free Stock Analysis Report
West Marine, Inc. (WMAR): Free Stock Analysis Report
Callaway Golf Company (ELY): Free Stock Analysis Report
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