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Analyst: Polaris remains ‘best powersports growth story’

Following the Polaris Q2 earnings call on Tuesday, RBC Capital Markets analyst Joe Spak provided Powersports Business with a research note in which he reports that RBC remains “positive on PII post a strong 1H and increased FY14 guidance. Moreover, we believe some of the competition/promotion overhangs on the stock have been removed. We believe the company showed why they are, and in our view, while they will remain, the best powersports growth story. …”

Spak adds that RBC looks forward “to their analyst day and MY15 product lineup announcements next week. We continue to expect a robust new product assault, which should keep the momentum in the stock going.”

Spak adds that Polaris North American off-road vehicle sales grew at a low-double-digits rate in 2Q “and outpaced the industry (+high-single-digits). Management raising FY14 ORV sales guidance by 2% to 11-13% on strong 2H product expectations and better than expected ACE sales. This is particularly impressive given tougher 2H ORV comps and should ease concerns about growth. ORV inventories appear fine and while the promotional environment in SxS remains elevated, it’s not getting worse. Although capacity issues may limit incremental margins in 2H, we believe topline demand is bigger driver of the stock. Further, the Poland ORV facility is on track for 4Q and should ease some constraints.”

Spak reports that Polaris has experienced positive momentum with Indian. “The Vintage and Chief models especially, are driving good momentum with >95 out of 150 signed dealers retailing in N.A. (up from ~75 in 1Q). Expectations are now for 125 retailing dealers by YE14 (LT 300 target unchanged). Victory was down MSD at retail in the quarter owing to a recall, but trends strengthened post that event. Management noted very low cannibalization (barely 3-4%) as the Victory repositioning appears to be working. We also believe Motorcycle expectations are more reasonable now (solidly with the guidance range vs. above the range prior) providing a better set up. Next motorcycle catalysts are new Indian models and further Slingshot details.”

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