Arctic Cat On Last Of Its 9 Lives

BMO Capital Markets said Arctic Cat Inc ACAT, which makes snowmobiles and all-terrain vehicles, is facing challenges from large competitors offering superior products.

Analyst Gerrick Johnson has downgraded the stock to Underperform from Market Perform as the company continues to miss earnings estimates and lower its guidance.

Arctic Cat's Recent Print

Arctic Cat reported a second-quarter loss per share of ($0.98), significantly below BMO’s $0.50 estimate and the Street consensus of $0.35.

Further, the company lowered its annual guidance once again. The company now expects FY 2017 sales of $600 million–$640 million, down from prior guidance of $635 million–$655 million. The company also widened its 2017 loss estimate to a range of ($1.00) to ($1.40) from ($0.70) to ($1.00).

“Arctic Cat is faced with the challenge of growing its business in a highly competitive industry with a decelerating growth rate,” Johnson wrote in a note.

Adding salt to the injury, a recent BMO survey indicates that more than 90 percent of all Arctic Cat dealers saw retail sales decline in the recent quarter, while 80 percent saw inventory grow on a year-over-year basis.

The survey showed that Arctic Cat scored the poorest out of all OEMs with dealers in areas of product performance, quality, price, profitability and dealer relations.

Meanwhile, analyst noted that his thesis of Arctic Cat being acquired by Chinese ORV companies for distribution advantages becomes less significant now as the likely suitor CF Moto is building out distribution on its own in North America.

“The company is on track to lose money for the second straight year, while we expect more losses next year, as well,” Johnson added.

Analyst's Reactions

As such, Johnson widened his 2017 loss forecast to $(1.78) from $(0.88), and cut his revenue estimate to $600 million from $615 million. Johnson also slashed the price target by $2 to $9, saying the company’s shares are over-valued.

Initially in the day, shares of Arctic Cat fell 1.03 percent to $14.36, but at last check had recovered to trade at $15.13, up 4.27 percent.