Although Macro Headwinds Persist, Wide-Moat Polaris Set to Capture Sales Growth

We don’t plan any material change to our $175 fair value estimate for wide-moat Polaris after incorporating recent results into our model. We view the shares as attractive. Fourth-quarter sales of $2.4 billion (up 21%) edged our $2.3 billion forecast, with all segments delivering strong growth. Off-road sales jumped 19%, while on-road rose 29% and marine 36%, bolstered by price and mix from inventory restocking. Polaris did cede some share in the quarter; retail sales declined at a mid-single-digit rate, worse than the industry’s low-single-digit downtick, hindered by weakness in the off-road and marine segments. Polaris called out soft recreational demand (utility is holding up) at retail, which we don’t find surprising, given the macro environment, but it also suffered from recalls that limited throughput to the dealer network. Still, EBITDA margin expanded 270 basis points to 14%, thanks to a gross margin that widened 360 basis points to 23.8%, benefiting from price and volume (shipments) that more than offset higher operating expenses attributable to marketing and corporate costs.