Polaris Has Favorable Risk-Reward, KeyBanc Says In Upgrade

Notwithstanding a slow start to the year by Polaris Industries Inc. PII, one KeyBanc Capital Markets analyst is fairly upbeat on the powersports vehicle manufacturer's prospects. 

The Analyst

Brett Andress upgraded Polaris Industries from Sector Perform to Outperform and maintained a $125 price target.

The Thesis

The first quarter of 2019 has been marred by unfavorable weather patterns, with especially wet and cool weather in February and early March, Andress said in the Sunday upgrade note.

The weather inflected in mid-March and trends improved dramatically, lending credence to the thesis that underlying demand is intact, the analyst said. 

"Importantly, contacts remain optimistic into the season, anticipating [low-to-mid-single digit] growth for FY19," Andress said. 

Polaris is likely to benefit from midyear 2020 product catalysts given expectations for a significant SxS launch in the form of either a step function improvement in function or an entirely new RZR platform, he said. 

This could add $1 to fiscal 2020 earnings per share, according to KeyBanc. 

Andress said he expects the company to be a beneficiary of the "tariff trade," with over $1.40 tied up in tariff costs that could benefit the P&L in various forms.

KeyBanc sees a favorable risk-reward developing given increasing evidence of a meaningful refresh to the RZR line this year and an expected benefit from tariffs if a resolution is reached, providing optionality.

The Price Action

Polaris shares were up 4.09 percent at $95.01 at the time of publication Monday. 

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Photo by Jiří Sedláček/Wikimedia.