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Polaris Inc PII

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Morningstar’s Analysis

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5-Star Price

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Economic Moat

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Capital Allocation

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Supply Chain Constraints and Inflation Outlook Cloud Polaris’ Profit Potential; Shares Undervalued

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

We believe wide-moat Polaris’ underlying product demand and brand strength are being overshadowed by near-term higher costs and supply chain strangulation. While the company reported stellar second-quarter wholesale sales growth of 40% (to $2.1 billion, up 19% from 2019), North American retail sales told a story of scarcity. In fact, North American retail sales fell modestly faster than the industry as a whole, down 28% in the period, hindered by low product availability. More specifically, a shortage led to Polaris suffering a market share loss in motorcycles despite high-20% retail sales growth (industry retail sales rose faster), but the firm was still able to grab gains in all-terrain vehicles, side-by-sides, and boats as peers appear to be as constrained as Polaris in these verticals. Also, owned inventory was up 48%, indicating nearly finished goods are waiting for final parts before shipment to dealers, constraining product throughput, and weighing on the retail sales metric.

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Company Profile

Business Description

Polaris designs and manufactures off-road vehicles, including all-terrain vehicles and side-by-side vehicles for recreational and utility purposes, snowmobiles, small vehicles, and on-road vehicles, including motorcycles and low-emission vehicles, along with the related replacement parts, garments, and accessories. The firm entered the aftermarket parts segment in 2016, tying up with Transamerican Auto Parts and then tapped into boats through the acquisition on Boat Holdings in 2018, offering exposure to new segments of the outdoor lifestyle market. Polaris products retailed through 2,300 dealers in North America and through 1,400 international dealers as well as more than 30 subsidiaries and 90 distributors in more than 120 countries outside North America at the end of 2020.

Contact
2100 Highway 55
Medina, MN, 55340
T +1 763 542-0500
Sector Consumer Cyclical
Industry Recreational Vehicles
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2020
Stock Type Cyclical
Employees 15,000

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