Analysts are giving this off-road vehicle maker a thumbs up, with a $164 price target. With its current dividend yield of 1.66%, that could add up to some great returns. Our second recommendation is to sell a company that was just purchased by Warren Buffett’s Berkshire Hathaway.
Polaris Industries (PII)
Polaris Industries (PII) designs, engineers, manufactures and markets innovative, high quality on and off-road vehicles, engineered parts, accessories and apparel.
Polaris is one of the most respected and innovative global manufacturers of recreational and utility vehicles. Over the past sixty years, Polaris has expanded its iconic brand-building into all-terrain vehicles, utility and recreational side-by-sides, motorcycles, small vehicles, spare parts, accessories and apparel. In 2014, Polaris added more than thirty new vehicles to its armada, including twenty new off-road vehicles, nine new snowmobiles, two new Indian Motorcycle® models plus the revolutionary three-wheeled motorcycle, Slingshot™.
In a first for the off-road industry, Polaris recently introduced a RANGER utility vehicle powered by a lithium-ion battery. Through a joint venture with Eicher, a leading vehicle and motorcycle manufacturer in India, Polaris recently began selling MULTIX—the first multi-role personal three-in-one on-road vehicle for the vast Indian market. Later this year, Polaris will begin selling its first electric motorcycle, the Victory Empulse TT.
During the past five years, Polaris has generated strong double-digit growth with revenues compounding at a 23% annual rate and earnings speeding even higher at a 33% annual rate. Strong brands and a relentless focus on controlling costs and driving manufacturing efficiencies have powered very profitable operations. Over the past five years, Polaris has produced a 56% average return on shareholders’ equity.
In 2014, Polaris reported record sales and earnings of $4.5 billion and $454 million, respectively. Management’s long-term goal is to drive sales to $8 billion while plowing up profitable 10% net profit margins.
The company generated $324 million in free cash flow during 2014 and returned $209 million to shareholders through cash dividends and stock buybacks. The Board approved a
10% increase in the quarterly dividend for 2015, representing the 20th consecutive year of increased dividend payments.
Polaris reported second quarter sales rose 11% to $1.1 billion with earnings increasing a sluggish 4% to $101 million with EPS up 5% to $1.49. Gross margins downshifted to 28% from 30% in the prior year period as significant cost pressures and delayed shipments occurred due to difficulties with a new motorcycle paint system in Spirit Lake, Iowa. Despite an expected $20 million cost to rectify the problem, management expects full year 2015 sales and earnings to throttle ahead between 10%-12% with full year EPS expected in the $7.32-$7.42 range.
Hitting a speed bump put the brakes on the price of Polaris’ stock, giving long-term investors the opportunity to rev up long-term portfolio returns with this HI-quality innovative global manufacturer with strong brands, powerful returns on shareholders’ equity and double-digit growth. Buy.
Ingrid R. Hendershot, Hendershot Investments, www.hendershotinvestments.com, 703-361-6130, September 2015