Polaris Industries Remains Durable in the Long Term

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In recent years, Polaris Industries (NYSE: PII  ) has been known more for its snowmobiles and off-road vehicles than anything else; but that looks to be changing. The company's reboot of Indian Motorcycles, one of the most iconic (and first) American bikes, is starting to pick up the traction that management promised when Polaris reintroduced the brand in August of last year. Recently released earnings showed strong growth over the prior year's numbers, but the market still wasn't thrilled about forward guidance. The thing is, Polaris is setting up to be a long-term winner with a great brand portfolio and comfortable industry tailwinds.

Not enough
Polaris shares fell 4% when it delivered forward guidance that, at the top end, came in at analysts' average estimate of $4.31 billion. On the bottom line, the company's top-end guidance of $6.37 per share came in $0.30 under the Street's estimates.

Despite the strengths in Polaris' just-ended quarter, the market wanted more encouraging forward results. The thing is, "forward" is in reference to the current year, and Polaris' ultimate value may lie beyond fiscal 2014's results.

Hog tie
Even though it missed estimates, Polaris still has projected one-year sales growth of 11%-14%; but let's look beyond that. The company's reboot of Indian Motorcycles, while initially doubted by some, is revving up the long-term prospects of the company.

Indian has the styling, legacy, and (hopefully) quality that can rival the U.S. king of hogs, Harley Davidson. With the first three models barely out the door, and only a fraction of the dealers actually stocking the motorcycles at this point, the implications of Polaris' big investment of 2013 is yet to be seen. Management noted an attractive order backlog that should keep the factory busy for months as the company addresses demand. Still, approaching Harley, a company that generates incredible brand loyalty, is a mighty task for a name that has been dormant for 60 years.

Realistically, Indian won't be the powerhouse brand for Polaris in the short term, given that the company derives the vast majority of its sales from other recreational vehicle lines, but it is an important tool for the company's image. Indian is a glitzy, headline-ready brand for the company, while Polaris' hardcore off-road vehicles are world class and well-respected among die-hard enthusiasts.

Class A management
A big long-term asset for Polaris is its management team. The company, while not targeting big quarter-to-quarter jumps on the financial statements, has proven its commitment to long-term value creation with a heavy R&D department, and a relatively constant flow of new offerings.

Even the language used in management's conference call strikes a docile, long-term tone: "While we cannot control our stock price or our P/E ratio, we do own the inputs and I trust this team to seize opportunities to execute better and to grow sales and net income well into the future."

At more than 16 times forward earnings, investors don't get a bargain on Polaris' growth and management team, but they could get peace of mind. With a global macroeconomic recovery in progress, big-ticket toys should continue to perform well. Led by a team in it for the long run, Polaris remains a solid investment.

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Michael Lewis

Michael is a value-oriented investment analyst with a specific interest in retail and media businesses. Before coming to the Fool, Michael worked with private investment funds focusing on deep value and special situations. Currently living in the media capital of the world--Los Angeles, California.

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