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Why Polaris Industries Stock Climbed 14% in April

By John Ballard – May 6, 2019 at 11:47AM

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Investors scooped up a bargain before the company's first-quarter earnings results were released.

What happened

Shares of Polaris Industries (PII 4.07%) jumped 14.2% last month, according to data provided by S&P Global Market Intelligence.

The stock dipped in March, but started to rebound right before April began. Shares had already gained over 15% for the month of April heading into the company's first-quarter earnings report on April 23.

PII Chart

PII data by YCharts.

The stock received several analyst upgrades as it nosedived in late 2018 on fears of a slowing global economy. The lower share price brought the forward P/E ratio down from the loftier levels seen in early 2018, making the stock more appealing to investors. By the time April rolled around, investors apparently sniffed a bargain, which caused the share price to soar ahead of earnings.

So what

While the first-quarter results were not awe-inspiring, they were enough to validate investors' renewed optimism.

Sales jumped 15% year over year to $1.5 billion. Higher interest expense as a result of the Boat Holdings acquisition caused earnings per share to fall by 8%, but EPS still exceeded management's expectations. 

Two off-road vehicles moving through the mud.

Image source: Getty Images.

Here's what CEO Scott Wine had to say about the company's performance: 

Polaris' 65th anniversary year is off to a solid start, as we delivered sound results and finished the quarter with strong momentum. The team executed well, providing quality products to our customers while navigating a dynamic trade environment. Retail sales results were somewhat mixed, with greater than 20 percent Snowmobile growth helping to offset modest weather-related declines in ORV, Motorcycles and Boats, although all three of these segments came on strong at the end of March.

Now what

Wine likes Polaris' competitive position for the rest of the year. The product lineup is strong, the supply chain is ready to meet demand for the peak spring retail season, and management is finding ways to save money by trimming costs. 

However, the ongoing trade battle between the U.S. and China, foreign currency headwinds, and higher interest rates are expected to cut about $1.50 per share off of the bottom line. 

Even with those challenges, management raised guidance for 2019 based on the better-than-expected performance in the first quarter. Management now sees adjusted earnings in the range of $6.05 to $6.30 per share, which is still down from adjusted EPS of $6.56 in 2018. Analysts expect Polaris to grow earnings 15% per year over the next five years. 

John Ballard has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Polaris Industries. The Motley Fool has a disclosure policy.

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