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Q2 ORV N. American retail sees Polaris growth: analyst

Recent dealer checks have found “a sequential retail improvement, with dealers associating the uptick to a solid economy and improving weather,” according to a research note provided to Powersports Business by BMO Capital Markets analyst Gerrick Johnson.

Johnson also announced that BMO is upgrading Polaris stock to Outperform from Market Perform, with a target price of $99.

“Despite a volatile stock market and macro uncertainty, PII's customers remain optimistic and we are seeing improvements in ORV demand as the spring weather has improved,” Johnson reports.

“We think the worst-case tariff scenario is now baked into PII’s stock price. Going forward, we think there is a higher likelihood of tariffs being reduced or removed than increased. We like the risk/reward setup with the stock now trading at 13x our 2020 EPS estimate of $6.47.

“Our most recent round of channel checks indicates a sequential retail improvement, with dealers associating the uptick to a solid economy and improving weather. Thus we have more confidence that North American off-road vehicle sales are now, in 2Q, trending up at a low- to mid-single-digit rate for PII. We expect the ORV market to grow, with share capture from Japanese competitors as well as Textron's Arctic Cat.

“We find that dealers have been quite positive on simply being Polaris dealers lately. This has been an ongoing trend we’ve been experiencing over the last 12 months. We find that positive commentary from dealers is generally a leading indicator to retail sales.

“We are also expecting a major product announcement this summer at the company's dealer event. This may be the worst kept secret in powersports. The original 50-inch wide RZR 900/570 platform has been basically unchanged for 12 years, while the 64-inch RZR XP 1000 platform has been on the market for nine years. An upgrade to either would be well-received by consumers, in our opinion.

“We cannot, for sure, say that the worst case tariff scenario is embedded in PII's stock price — tariffs can presumably go higher. But going forward, we think there is a higher likelihood of tariffs being reduced or removed rather than increased.

“If we assume a best case scenario, where tariffs are removed entirely, we could assume $1.04/share could be added back to our 2020 model for EPS of $7.51 vs our current $6.47. However, the company has enacted countermeasures, including price increases. If these actions are not fully reversed, we think the company could realize ~$30 million benefit, or an additional $0.37/share. Therefore, should tariffs be removed, we think there is earnings power for PII of $7.88 per share in 2020.”

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