Wedbush Says Buy The Dip In Power Sports

• Brunswick Corporation BC shares have lost 6 percent since August 31, while shares of Polaris Industries Inc. PII are down 10 percent.
• Wedbush’s James Hardiman maintained an Outperform rating on both the companies.
• Following the sell-off in the leisure space, Hardiman believes that the declines in the shares of Brunswick and Polaris were overreactions, and they now represented buying opportunities.

The global financial markets have suffered a downturn over the last six weeks. The stocks of leisure companies have not been spared, given their discretionary and cyclical nature.

Analyst James Hardiman said, however, that the sell-off in the leisure space had been “far from uniform,” and in some cases stock performance had not been in sync with the fundamental outlook, “creating some buying opportunities.”

Brunswick: The Favorite Power Sports Name

Hardiman mentioned that Brunswick continued to be the favorite power sports name for several reasons.

“We believe that BC has arguably the most internally created momentum (m&a, fitness adjacencies, margin opportunity, market share gains) as well as what we believe is the healthiest primary end market (marine) of the group given a relatively non-promotional group of competitors with lean channel inventories,” the analyst wrote.

The company generated 5.6 percent growth in US boat sales year-to-date, in-line with the growth achieved in the previous year. Hardiman expects Brunswick to project mid-teens EPS growth when it announces its three-year outlook at its analyst meeting in November.

In the report Wedbush noted, “While BC’s performance year to date has been identical to that of the market (down ~9%), BC shares have underperformed by ~4% since mid-August, creating a tactical buying opportunity for a company that we believe is compelling long-term.”

Hardiman has a $63 price target for the company.

Polaris: The Most Controversial Name

Hardiman believes that Polaris’ targets for 2H appear attainable and the company should enjoy accelerating earnings power in 2016.

“The bear cases surrounding PII’s ORV business are as numerous as they have ever been (farm/ag/energy slowdown, promotional environment, excess dealer inventory, increased competition), although none of these, in our view, represent the death blow that bears are making them out to be,” the Wedbush report stated.

Hardiman believes that the stock could trade “at meaningfully higher levels by year end,” if Polaris is able to sustain mid-single digit ORV growth, while containing inventory growth to mid-single digits and re-accelerating ASP growth.

Wedbush has a $184 price target for the company.

Hardiman commented, “BC and PII are the 2nd and third cheapest names in our coverage, which are glaring over-reactions in our view, and we believe they represent excellent ideas as investors take inventory of the recent carnage and look to buy.”