Check out the latest Polaris Industries earnings call transcript.
Reversing course from their 1.8% rise in November, shares of Polaris Industries (NYSE:PII) fell 21% in December, according to data from S&P Global Market Intelligence. In addition to the overall downturn in the market, rising interest rates and a bearish sentiment regarding the stock echoed through Wall Street and helped to drive shares lower.
One factor which spooked investors early in the month was news that consistent interest rate raises could be on the horizon in 2019. During a press conference on Dec. 4, New York Fed President John Williams expressed his opinion that "further gradual increases in interest rates will best sponsor a sustained economic expansion." On the day of these comments, Polaris shares closed 9.8% lower. Clearly, investors seemed concerned that rising interest rates could hinder American consumers from making new purchases of ATVs and other recreational vehicles, thereby adversely impacting the company's top line; the North American market accounted for about 80% of sales in 2017.
Investors also took note when Wall Street spoke last month. In the first of two price-target changes on the stock, Eric Wold, an analyst at B. Riley FBR, revised his price target from $126 to $99, according to Thefly.com. Wold, moreover, downgraded the stock from buy to hold due to the uncertainty surrounding China and tariffs. About one week later, analyst Timothy Conder at Wells Fargo followed suit, though he assumed a less bearish stance. Even as he lowered his price target from $115 to $90, Conder maintained his outperform rating on the stock.
Although some investors may interpret future interest rate raises as a headwind, Polaris Industries' management appears to be less concerned. During the Q3 2018 earnings conference call, CEO Scott Wine attempted to inspire hope about the company's prospects in the year ahead, stating, "Despite the recent increase in market volatility, not to mention interest rates and tariffs, the positive influences on the U.S. economy still outweigh the risks, and we expect GDP growth to continue." Investors should look for top-line growth in the fourth quarter of 2018 and through 2019 as proof that higher interest rates are not adversely affecting the company.
In regard to Wall Street's revised price targets, investors should remember that it's always best to remain skeptical when evaluating Wall Street's actions, as its time horizons are frequently shorter than the multiyear holding periods we favor.