On Nov 29, Zacks Investment Research upgraded the world’s largest wholesale distributor of swimming pool supplies Pool Corporation POOL by a notch to a Zacks Rank #2 (Buy).
Last month, the company reported its third-quarter 2016 results, wherein the bottom line surpassed the Zacks Consensus Estimate while the top line marginally missed the same. This quarter also marked the company’s ninth consecutive earnings beat/meet, with an average positive surprise of 189.93% in the trailing four quarters.
Meanwhile, the company also raised its full-year 2016 adjusted earnings per share guidance. It now expects earnings in the range of $3.40–$3.46 per share (the previous projection was $3.30–$3.45), an increase of roughly 17–19% over the year-ago figure.
Also, upward estimate revisions reflect optimism regarding the stock’s prospects. The Zacks Consensus Estimate for 2016 has moved north by nearly 1% to $3.45 per share, over the last 60 days.
Pool generates more than half of its gross profits from products related to the maintenance and repair of pools, while the remainder is derived from the construction and installation of new pools and landscaping. Maintenance and upkeep of pools ensure a steady revenue stream for the company even during economic downturns.
Moreover, stronger consumer discretionary spending evidenced by the company’s increase in sales of pool construction materials and ancillary equipment and supplies as consumers continue to invest in enhancing their outdoor living spaces along with a tight supply situation, point to consistently robust demand for the rest of 2016 and 2017.
Going forward, the company’s plans to penetrate newer geographic locations, expand in existing markets, and launch product categories are likely to boost its market share.
Meanwhile, Pool is committed toward returning more value to shareholders. Apart from share buybacks, there is a dividend distribution program in place via which the company has raised its dividend 11 times since 2004. These initiatives reflect the company’s confidence in its fundamentals as well as reduce outstanding share count, thereby increasing return on equity.
However, business being susceptible to changes in the weather and unfavorable political and regulatory conditions in its international markets as well as negative currency translation, remain potent headwinds to the company’s top line.
Other Stocks to Consider
Other well-performing stocks in the Leisure and Recreation Products industry include Electronic Arts, Inc. EA, Callaway Golf Company ELY and Activision Blizzard, Inc. ATVI.
Electronic Arts has surpassed earnings estimates in all trailing four quarters with an average beat of 29.89%. It carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Callaway Golf has current-year growth estimate of 212.4% compared with the industry average of 13.9%. It has a Zacks Rank #2.
Activision Blizzard has a long-term growth rate of 20.5%, higher than the industry average of 13.7%. It carries a Zacks Rank #2.
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