Risk-Reward Balanced at Pool Corp. - Analyst Blog

On Jun 6, 2014, we issued an updated research report on Pool Corp. POOL.

On Apr 17, the Louisiana-based wholesale distributor of swimming pool supplies, equipment and related products announced mixed first-quarter earnings. While the company missed the Zacks Consensus Estimate for earnings by 10%, it beat the same for revenues by 2.3%. However, both earnings and revenues grew year over year.

We are encouraged by Pool's sound long-term fundamentals. The presence of a limited number of vendors and a large number of dealers in the swimming pool industry gives the company a significant advantage as a distributor and offers ample opportunity for market share growth. Despite consumer spending continuing to be low, the company remains well positioned to take advantage of the overall market recovery and long-term growth opportunities in the industry. Moreover, we believe that maintenance of pools ensure a recurring revenue stream for the company even during economic downturn. We are also encouraged by the company's healthy capital deployment initiatives, which will boost investors' confidence in the stock.

However, we remain aware of the weak housing market, which is affecting the company's green business — construction and installation of new pools and landscaping. Higher interest rates have weakened net order trend in the housing market in the past 2-3 quarters compared with the first half of 2013 which in turn is hurting demand for Pool's products and  services.

We are also concerned about the seasonal nature of the company's business. Although the company is poised to benefit from the favourable weather trends in the upcoming quarters, inclement weather at the end of the year might affect sales. Also, unseasonably late warming trends in spring or early cooling trends at the end of the year might impact the company's revenues.

Other Stocks to Consider

Pool currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same sector include Malibu Boats, Inc. MBUU and Smith & Wesson Holding Corporation SWHC, sporting a Zacks Rank #2 (Buy). However, in the broader leisure and recreational services industry Royal Caribbean Cruises Ltd. RCL with a Zacks Rank #2 may also be considered.

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