Polaris Industries, Inc. (NYSE:PII)

CAPS Rating: 4 out of 5

Designs, engineers and manufactures all terrain vehicles, snowmobiles, and motorcycles and markets them, together with related replacement parts, garments and accessories through dealers and distributors located in the United States, Canada and Europe.

Results 1 - 20 of 75 : 1 2 3 4 Next »

Recs

0
Member Avatar AnsgarJohn (99.09) Submitted: 4/11/2014 5:31:30 PM : Outperform Start Price: $131.75 PII Score: +2.11

17% expected return. I like the Indian Motorcycles.

Detailed Analysis   Guru Score: 99%   Find Other Stocks that Pass This Guru
STAGE 1: "Is this a Buffett type company?"

A bedrock principle for Buffett is that his type of company has a "durable competitive advantage" as compared to being a "price competitive" or "commodity" type of business. Companies with a "durable competitive advantage" are more likely to be found in these sub-industries: Brand Name Fast Food Restaurants, Brand Name Beverages, Brand Name Foods, Brand Name Toiletries and Household Products, Brand Name Clothing, Brand Name Prescription Drugs, Advertising, Advertising Agencies, TV, Newspapers, Magazines, Direct Mail, Repetitive Services for Businesses, Low Cost Producers of Insurance, furniture, or Low Cost Retailers. While you should be easily able to explain where the company's pricing power comes from (i.e. a strong regional brand image, a business tollgate, its main products are #1 or # 2 in its field and has been on the market for years and hasn't changed at all, a consumer or business ends up buying the same product many times in a year, etc. or having the lowest production cost among its competition), there are certain figures that one can look at that can qualify the company as having a durable competitive advantage.

LOOK FOR EARNINGS PREDICTABILITY: [PASS]

Buffett likes companies to have solid, stable earnings that are continually expanding. This allows him to accurately predict future earnings. Annual earnings per share from earliest to most recent were 1.49, 1.57, 1.36, 1.55, 1.75, 1.53, 2.14, 3.20, 4.40, 5.40. Buffett would consider PII's earnings predictable, although earnings have declined 2 time(s) in the past seven years, with the most recent decline 5 years ago. The dips have totaled 25.9%. PII's long term historical EPS growth rate is 15.0%, based on the 10 year average EPS growth rate.

LOOK AT THE ABILITY TO PAY OFF DEBT [PASS]

Buffett likes companies that are conservatively financed. Nonetheless, he has invested in companies with large financing divisions and in firms with rather high levels of debt. PII has a debt of 284.3 million and earnings of 372.6 million, which could be used to pay off the debt in less than two years, which is considered exceptional.

LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON EQUITY: [PASS]

Buffett likes companies with above average return on equity of at least 15% or better, as this is an indicator that the company has a durable competitive advantage. US corporations have, on average, returned about 12% on equity over the last 30 years. The average ROE for PII, over the last ten years, is 41.0%, which is high enough to pass. It is not enough that the average be at least 15%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROE must be at least 10% for Buffett to feel comfortable that the ROE is consistent. In addition, the average ROE over the last 3 years must also exceed 15%. The ROE for the last 10 years, from earliest to latest, is 35.1%, 34.8%, 57.7%, 61.3%, 82.9%, 48.8%, 39.5%, 43.8%, 43.7%, 66.2%, and the average ROE over the last 3 years is 51.2%, thus passing this criterion.

LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON TOTAL CAPITAL: [PASS]

Because some companies can be financed with debt that is many times their equity, they can show a consistently high ROE, yet still be in unattractive price competitive businesses. To screen this out, for non-financial companies Buffett also requires that the average Return On Total Capital (ROTC) be at least 12% and consistent. In addition, the average ROTC over the last 3 years must also exceed 12%. Return On Total Capital is defined as the net earnings of the business divided by the total capital in the business, both equity and debt. The average ROTC for PII, over the last ten years, is 32.5% and the average ROTC over the past 3 years is 39.2%, which is high enough to pass. It is not enough that the average be at least 12%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROTC must be at least 9% for Buffett to feel comfortable that the ROTC is consistent. The ROTC for the last 10 years, from earliest to latest, is 33.5%, 33.2%, 23.1%, 28.4%, 33.7%, 24.7%, 31.1%, 36.3%, 38.0%, 43.2%, thus passing this criterion.

LOOK AT CAPITAL EXPENDITURES: [PASS]

Buffett likes companies that do not have major capital expenditures. That is, he looks for companies that do not need to spend a ton of money on major upgrades of plant and equipment or on research and development to stay competitive. PII's free cash flow per share of $1.80 is positive, indicating that the company is generating more cash that it is consuming. This is a favorable sign, and so the company passes this criterion.

LOOK AT MANAGEMENT'S USE OF RETAINED EARNINGS: [PASS]

Buffett likes to see if management has spent retained earnings in a way that benefits shareholders. To figure this out, Buffett takes the total amount of retained earnings over the previous ten years of $15.73 and compares it to the gain in EPS over the same period of $3.91. PII's management has proven it can earn shareholders a 24.9% return on the earnings they kept. This return is more than acceptable to Buffett. Essentially, management is doing a great job putting the retained earnings to work.

HAS THE COMPANY BEEN BUYING BACK SHARES: [NEUTRAL]

Buffett likes to see falling shares outstanding, which indicates that the company has been repurchasing shares. This indicates that management has been using excess capital to increase shareholder value. PII's shares outstanding have not fallen in either the current year or the last 3 or 5 years and so it fails this criterion. This is a bonus criterion and will not adversely affect the ability of a stock to pass the strategy as a whole if it is failed.

The preceding concludes Buffett's qualitative analysis. If and when he gets positive responses to all the above criteria, he would then proceed with a price analysis. The price analysis will determine whether or not the stock should be bought. The following is how he would evaluate PII quantitatively.

STAGE 2: "Should I buy at this price?" Although a firm may be a Buffett type company, he won't invest in it unless he can get a favorable price that allows him a great long term return.

CALCULATE THE INITIAL RATE OF RETURN: [No Pass/Fail]

Buffett compares his type of stocks to bonds, and likes to see what a company's initial rate of return is. To calculate the initial rate of return, take the trailing 12-month EPS of $5.40 and divide it by the current market price of $131.89. An investor, purchasing PII, could expect to receive a 4.09% initial rate of return. Furthermore, he or she could expect the rate to increase 15.0% per year, based on the 10 year average EPS growth rate, as this is how fast earnings are growing.

COMPARE THE INITIAL RATE OF RETURN WITH THE LONG-TERM TREASURY YIELD: [PASS]

Buffett favors companies in which the initial rate of return is around the long-term treasury yield. Nonetheless, he has invested in companies with low initial rates of return, as long as the yield is expected to expand rapidly. Currently, the long-term treasury yield is about 2.75%. Compare this with PII's initial yield of 4.09%, which will expand at an annual rate of 15.0%, based on the 10 year average EPS growth rate. The company is the better choice, as the initial rate of return is close to or above the long term bond yield and is expanding.

CALCULATE THE FUTURE EPS: [No Pass/Fail]

PII currently has a book value of $8.16. It is safe to say that if PII can preserve its average rate of return on equity of 41.0% and continues to retain 65.62% of its earnings, it will be able to sustain an earnings growth rate of 26.9% and it will have a book value of $88.20 in ten years. If it can still earn 41.0% on equity in ten years, then expected EPS will be $36.12.

CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail]

Now take the expected future EPS of $36.12 and multiply them by the lower of the 5 year average P/E ratio or current P/E ratio (24.4) (5 year average P/E in this case), which is 20.8 and you get PII's projected future stock price of $750.87.

CALCULATE THE EXPECTED RATE OF RETURN BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail]

Now add in the total expected dividend pool to be paid over the next ten years, which is $43.45. This gives you a total dollar amount of $794.32. These numbers indicate that one could expect to make a 19.7% average annual return on PII's stock at the present time. Buffett would consider this a great return.

CALCULATE THE EXPECTED FUTURE STOCK PRICE BASED ON AVERAGE EPS GROWTH: [No Pass/Fail]

If you take the EPS growth of 15.0%, based on the 10 year average EPS growth rate, you can project EPS in ten years to be $21.92. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio or current P/E ratio (24.4) (5 year average P/E in this case), which is 20.8. This equals the future stock price of $455.82. Add in the total expected dividend pool of $43.45 to get a total dollar amount of $499.26.

CALCULATE THE EXPECTED RETURN USING THE AVERAGE EPS GROWTH METHOD: [No Pass/Fail]

Now you can figure out your expected return based on a current price of $131.89 and the future expected stock price, including the dividend pool, of $499.26. If you were to invest in PII at this time, you could expect a 14.24% average annual return on your money. Buffett likes to see

Recs

0
Member Avatar DocRiggs (53.86) Submitted: 4/2/2014 2:21:46 PM : Outperform Start Price: $142.03 PII Score: -2.34

MF One

Recs

0
Member Avatar BUbulldog (67.55) Submitted: 3/10/2014 10:06:07 AM : Outperform Start Price: $137.60 PII Score: +0.42

Snow = snowmobile sales. We had a lot of snow. That's as insightful as I will get.

Recs

0
Member Avatar StewpotDrew (32.57) Submitted: 2/3/2014 12:07:13 AM : Outperform Start Price: $124.55 PII Score: +5.27

Business run well. Creative management. New products. I'd like to smoke a peace pipe with the Indian.

Recs

0
Member Avatar benpop318 (< 20) Submitted: 1/30/2014 1:51:35 PM : Outperform Start Price: $127.62 PII Score: +3.45

The company has great product innovation and management.

Recs

0
Member Avatar helicopterfool (25.32) Submitted: 1/28/2014 3:04:50 PM : Underperform Start Price: $128.74 PII Score: -2.32

per ibd

Recs

0
Member Avatar happygigging (< 20) Submitted: 1/22/2014 10:50:31 AM : Outperform Start Price: $137.52 PII Score: -1.66

More acquisitions in related products are increasing sales.

Recs

0
Member Avatar bigstylianos (75.16) Submitted: 1/14/2014 7:12:59 AM : Outperform Start Price: $138.44 PII Score: -3.30

The new Indian motorcycle range is a winner for polaris

Recs

0
Member Avatar gypsystem (32.31) Submitted: 1/11/2014 12:47:38 AM : Outperform Start Price: $143.11 PII Score: -5.70

Motorcycle division should do well. Looks like there's lots of room for growth.

Recs

6
Member Avatar TMFPencils (99.81) Submitted: 12/26/2013 2:05:46 AM : Outperform Start Price: $142.56 PII Score: -5.54

There are a lot of things to like with Polaris. My brother and brother-in-law, both of whom are interested in motorcycles and vehicles of all sorts, have much respect for the Polaris brand. The brand power of Polaris is significant and gives the company a competitive edge over the long run.

Not to mention some other positive developments:

Improving margins, cash outweighs debt more than 3-to-1, and the business is a strong cash flow generator. An experienced and innovative management team just sweetens the deal.

Although the stock is gracing all-time highs, the fact is that Polaris has the financial performance and long-term prospects to back up a P/E ratio of 28.

The bottom line: this strikes me as a quality business with a respectable following and brand power, impressive financial performance, and an innovative management team. If that isn't a recipe for a long-term market outperform, I don't know what is.

In the short-term, anything can happen. I'm not one for timing the market (some of my worst CAPS picks can confirm this). In the long run, business fundamentals are what count. Polaris has a strong business that should lead to market-beating returns over the next 5+ years.

Recs

0
Member Avatar Mark239 (77.86) Submitted: 12/23/2013 10:39:05 PM : Outperform Start Price: $142.87 PII Score: -6.19

growth company

Recs

0
Member Avatar GVFool15 (61.27) Submitted: 12/21/2013 1:52:45 AM : Outperform Start Price: $141.54 PII Score: -5.36

Top innovator in the off road vehicle market. Hold for 5+ years!

Recs

1
Member Avatar investorpoet2 (92.11) Submitted: 12/6/2013 10:17:46 AM : Outperform Start Price: $136.14 PII Score: -2.61

Sales have grown by over 12% over the past 5 years. Net income has grown by over 22% during the past five years. Return on equity has been over 40% for the past five years and return on capital has been over 30% for the past five years. The company has performed very well, and the economy is just getting going.

Looking ahead, analysts project EPS growth of almost 17% for the next five years. Given their returns previously, this may be conservative. All their brands are growing faster than this except for their motorcycles, and those have been redesigned and have gotten good reviews.

Starting with this year's projected EPS of $5.39/share and growing earnings by 16% gets $24/share in earnings in 10 years. Assuming a P/E of 32, shares would be worth $760 or so. Discounted back at 15% gets me an intrinsic value of $190. At around $136 today, I'm getting a 28% discount. Not a bad deal. This should outperform the market for years.

Recs

0
Member Avatar mfoolid (68.63) Submitted: 11/29/2013 12:15:06 PM : Outperform Start Price: $133.60 PII Score: -0.09

Eamon and family pick for 11/13

Recs

0
Member Avatar mazske (55.61) Submitted: 11/20/2013 11:54:57 PM : Outperform Start Price: $130.93 PII Score: +0.51

Great leadership. Indian motorcycles will become more popular than Harley's in a decade or so.

Recs

1
Member Avatar grankh (85.01) Submitted: 10/20/2013 2:04:34 AM : Outperform Start Price: $131.43 PII Score: -4.50

This is another of my real-life holdings. One of my investment clubs also bought the stock, at my recommendation. So I hold shares in my personal account and in one of my investment club accounts.

Sales have grown almost 24% per year since 2009, and EPS has grown over 37% per year during that time. The profit margin has grown in each year since 2008. The earned-on-equity has been about 40% or more since 2006, so makes a decent return on average. The debt has been falling since 2008, so that is a good trend. The P/E is high. Higher than it has been in the past 5 years and double the average P/E during that time. The PEG ratio is reasonable, considering the historic growth rates. The stock pays a reasonable dividend, yielding almost 3%, and has raised the dividend in each of the past 5 years.

Assuming slower growth, I am expecting this stock to grow 50% over the next 5 years, to about $200 a share. With the dividend, that would give me a rate of return of about 10%. However, if the stock keeps growing at the rate it has over the past few years, and keeps increasing its dividend, then I could earn much more than that 10% a year, which is why I bought the stock in the first place, and bought it for less than it is now trading at. It is the expectation that growth will not slow as much as I based my purchase price on that I will hold this stock. If growth does slow down to below my expectations, then that would change my thesis on which I based my purchase and would force me to reevaluate my purchase. We'll have to wait and see how this trade turns out.

Recs

0
Member Avatar tiger60436 (37.41) Submitted: 9/26/2013 8:33:57 AM : Outperform Start Price: $128.18 PII Score: -3.70

T

Recs

0
Member Avatar amwhite6 (48.98) Submitted: 9/17/2013 3:29:48 PM : Outperform Start Price: $124.98 PII Score: +0.60

Changing My Caps to Reflect my investing strategy. I start with a simple screener trying to find undervalued dividend paying stocks. Then because I want to invest in things I understand I eliminate any businesses I have not heard of or in areas I lack knowledge ( Financials, Precious Metals). After that I check the Caps Rating and it gets a thumbs up if it is rated 4 stars or higher. Very few 3 star companies will get a thumbs up but occasionally i will go out on a limb with one.

Recs

0
Member Avatar JoeRetr0 (< 20) Submitted: 9/10/2013 8:02:07 AM : Outperform Start Price: $115.61 PII Score: +7.99

I think Polaris is a winner and a solid pick for the next five years and beyond. It has a dedicated management team who has demonstrated their ability to run a company and effectively demonstrate their commitment to the iconic Indian brand that was and forever will be America's first motorcycle. They have a large generation of brand enthusiasts who are dedicated to seeing Indian and it's stewardship by Polaris succeed. Polaris is realistic in their expectations and has already stated there could be good times and bad times ahead, with certain factors out of their control and has priced their three Indian models accordingly which are priced close to similar models from Harley Davidson. This demonstrates they are not doing what previous companies trying to bring back the Indian brand have done by overpricing their inventory which proved to be a deal-breaker for most consumers and eventual doom for the brand. Polaris also has demonstrated that they're truly devoted to the Indian brand and not trying to put Harley Davidson out of business. They demonstrated this at this Summer's gathering at Sturgis which has been a Harley-focused event for years. Harley Davidson and it's customers took notice and responded positively to Polaris' bravery for unveiling their three models at Sturgis which earned the company a lot of respect. You see deep down, even Harley Davidson and it's enthusiasts desire to see the Indian brand succeed. Just watch the videos over at www.indianmotorcycels.com, some of which will be sure to bring a tear to the eye of anyone who is familiar with the lore and legacy of Indian, America's first motorcycle. I almost forgot to mention, Polaris is an American company that is devoted to keeping American workers employed in their factories instead of electing to have their Indian lineup built in China. If Polaris continues to support the Indian brand this way we can expect some great advances for their company and stock for many years to come!

Recs

0
Member Avatar PhDFever (26.24) Submitted: 8/23/2013 10:40:53 AM : Underperform Start Price: $111.67 PII Score: -10.57

Expect this to drop as market conditions worsen in the coming months.

Results 1 - 20 of 75 : 1 2 3 4 Next »

Featured Broker Partners


Advertisement