Polaris Rises Despite Lower Than Expected Guidance After Peer Acquired
The shares of motorcycle and all-terrain vehicle maker Polaris (PII) are rising after the company's competitor, Arctic Cat (ACAT), announced today that it had agreed to be acquired by Textron (TXT) . Polaris' shares are rising despite the lower than expected profit guidance it provided yesterday morning and today's subsequent downgrade by research firm Wunderlich.
DEAL: Textron, a multi-industry conglomerate which makes aircraft, agreed to buy Arctic Cat for $18.50 per share, or $247M, in cash, the companies announced this morning.
POLARIS EARNINGS: Yesterday morning, Polaris reported fourth quarter earnings per share, excluding some items, of $1.18, versus the consensus outlook of $1.19. The company's Q4 revenue came in slightly above expectations, but it provided fiscal 2017 EPS guidance, excluding some items, of $4.25-$4.50, versus the consensus outlook of $5.06.
DOWNGRADE: Wunderlich analyst Rommel Dionisio downgraded Polaris to Hold from Buy, noting that the retail sales of Polaris' "core off-road vehicle segment" came in below those of the sector, while the company's 2017 profit guidance was below expectations. Although Polaris' profit guidance looks "conservative," its off-road vehicle business is "sluggish" amid recent recalls, according to Dionisio. Meanwhile, the company's motorcycle business is "a mixed bag," as retail sales of its Indian brand jumped 20% last quarter, but the shut down of its Victory brand is weighing on its 2017 outlook, the analyst stated. Warning that it will likely be several quarters before Polaris' earnings rebound, Dionisio lowered his price target on the stock to $85 from $98.
PRICE ACTION: In early trading, Polaris gained 1.4% to $87.64, while Arctic Cat surged 41% to $18.50. Textron, which also posted lower than expected fourth quarter sales and earnings this morning, is down nearly 10% to $44.51 per share in early trading.
Disclosure: None.