KeyBanc Goes Bullish On Pool Corp, Silver Spring Networks

• Pool Corporation POOL shares fell after the company announced a 2Q miss and lowered its guidance. Silver Spring Networks Inc SSNI is down 6 percent over the past one month.
• Pacific Crest analysts upgraded the ratings on both the companies from Sector Weight to Overweight.
• While Pool is benefiting for recurring US business and rising home values, Silver Spring Networks is poised to enter into the next multiyear growth cycle.

Analyst Kenneth R. Zener maintained a price target of $79 for Pool. The company has a US-centric, non-discretionary maintenance pool profile, which currently offers “an attractive risk to reward.”

Zener believes that the 3Q15 sales trends will “normalize,” with “cyclical upside potential from new pool construction and remodeling tied to home-owners' rising home equity.”

After Pool missed 2Q expectations and reduced its EPS guidance from $2.72-$2.87 to $2.72-$2.82, its shares declined 1-2 percent. Zener believes that the negative stock reaction to the 2Q miss and reduced EPS guidance is “overblown.”

In the report Pacific Crest noted, “POOL should reasonably be able to execute on its long-term sales growth target of +6-10%, driven by organic sales center growth (+1-2%), center growth from M&A (+1-2%), industry growth driven by a growing installed base (+1-2%), price inflation (+1-2%), and pent-up demand in refurbishment and remodeling (+1-2%).”

Analyst Brent Bracelin established a price target of $16 for Silver Spring Networks. The analyst believes that the company is poised to enter next year with strong order momentum, which may drive “the next multiyear growth cycle.”

“New software and networking technology makes SSNI a key enabler fueling the digital transformation of the trillion-dollar power industry,” Bracelin wrote.

The Pacific Crest report said that the more bulling stance on the company is based on:

1. Accelerating revenue growth
2. TAM expansion via new software, analytics, street lighting and IoT products
3. International expansion
4. Untapped profit leverage

Bracelin estimates that every 500 bps of operating-margin expansion could boost the company’s EPS by an additional $0.25.