Polaris (PII), mcap=$6077m

PII pitch:
– Manufacturer of snowmobiles.
– Huge COVID beneficiary with sales 25% above the previous peak.
– The business is already faltering but the decline is masked by dealer channel fill.
– This “Channel fill” opportunity has now burned up, creating challenging comparables in the back half of ’23 for volumes and margins.
– Dealer inventories now seem to be at 2019 levels, which in itself was a year of oversupply.
– A minimum of $600m revenue headwind for 2H23.
– Management’s guidance is unachievable.
– Earnings quality is low with only 1/3 of 2022 net income converting to FCF.

PII valuation:

– Appears cheap optically at 10.2x on guided EPS vs 5-year average P/E of 13.3x .
– However, guidance is not achievable and historical multiple is from ZIRP years.

Exp. gain: Not specified.

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