Arctic Cat’s decision to invest $27 million into its manufacturing facilities in Minnesota “leads us to believe the likelihood of management ‘cleaning up’ the company for a sale is now lower, while the likelihood of it going alone is now higher. We had thought a buyout by an industry player, like China’s CFMOTO, could be a possible positive end-game for investor,” according to a research note provided to Powersports Business by BMO Capital Markets analyst Gerrick Johnson.
Johnson goes on to report that “[on] its own, ACAT’s engineer and design teams have come up with some neat products and showing pluck against bigger and stronger competition with better distribution. But Arctic Cat is the sixth or seventh player in off-road, and the third player in a four-player snowmobile field, and its competition continues to get tougher, up against a dominant Polaris, growing BRP, reenergized Honda, Yamaha and Kawasaki, as well as the venerable John Deere and upstarts like KYMCO from Taiwan and CFMOTO from China.”
Johnson adds that while BMO has been “encouraged by changes being made at the company, and dealers' generally positive reaction to these changes, we think it is still too early to call the turnaround a success. In fact, post 4Q results, we are a bit more concerned that the dealer inventory reduction program and turnaround of the company will take longer than originally expected.
“Change will take time, and maybe longer than investors may currently anticipate. Biting the bullet and clearing excess inventory is a good first start, but aged inventory seems to be a symptom of a bigger cultural problem. Management has assured investors that a strategic road map was still in the process of development. We will get this roadmap on May 21, when the company hosts an investor/analyst event in New York City.”