Feltl and Company analyst Mark Smith offered Arctic Cat as part of Feltl’s “2013 Top Ideas” program.
Here’s how Smith sizes up the Arctic Cat stock, which he rates as a “strong buy”:
- “ACAT is a high growth company that is diversifying its product line and boosting sales.”
- “ACAT has produced +140% EPS growth in the ttm period and has increased revenue by approximately 28%. A year ago ACAT repurchased approximately 1/3 of its outstanding shares at an approximate 60% discount to the current share price, however, we think this has hidden how strong the company’s results have been as operating income has increased nearly 120% ttm.”
- “We think ACAT will continue its strong growth trend through F2014. We project 58% EPS growth in F2013 (March year-end) and 19% EPS growth in F2014. Management’s EPS guidance is for 54%-60% this year.”
- “New product launches will continue to boost sales, in our view. ACAT produced strong sales of its Wildcat recreational side by side in its initial year, and we think the company can continue to produce growth from its second generation Wildcat as well as its newly announced four-seater version. We expect additional new product launches over the next twelve months.”
- “ACAT shares have sold-off recently, and we think the shares are primed for a strong 2013. ACAT shares have declined over 30% since its high in September. We think recent weakness is due to tax selling as well as a downgrade. We think the timing is suspect given the strong annual guidance and recent snowfall which we think will boost F2013 PG&A sales and F2014 snowmobile sales.”
- “The shares are undervalued trading at 10.7x next year’s earnings and 5.1x EV/EBITDA. ACAT’s peers trade at approximately 16x forward earnings and 7.5x EV/EBITDA. With higher earnings growth, new product lines and a clean balance sheet, we think ACAT should trade at least inline with its peers.”