Polaris Rumbles Higher

 | Oct 19, 2012 | 11:30 AM EDT
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America is on a roll -- literally! Not only are cars selling, but off-road vehicles and motorcycles are rumbling down the street. Maybe high gas prices are sending Americans to Polaris (PII) and Harley Davidson (HOG) dealerships? Maybe it's pent-up demand. Whatever it is, you can't argue that the economy is stuck in the mud.

On Thursday Polaris, maker of off-road vehicles, motorcycles and snowmobiles, posted some impressive third-quarter results. Revenue jumped 20.6% to $879.9 million, 6% better than the consensus estimate. Earnings per share came in at $1.33, up 40%, or $0.13 ahead.

Management raised guidance, as well. For fiscal 2012, Polaris expects earnings per share in the range of $4.32 to $4.37 on a 19% to 20% increase in revenue.

Off-road-vehicle sales rose 18%, and on-road vehicles (motorcycles) were likewise higher. Sales of the company's Victory and Indian brands increased 78% to $63.4 million. Even the parts, garments and accessories division saw revenue rise 14% to $128 million. The strong sales boosted gross margins. Gross margins were up 120 basis points, operating income rose 28% to $141.6 million and net income drove 37% higher.

If there was a weak spot, it was in snowmobile inventories. Snowmobile sales are expected to be flat with last year at about $280 million. Apparently the snowmobile market is in a deep freeze, with industry-wide sales down 20%. The mild winter last year left a lot of snowmobile dealerships out in the cold.

The good news hasn't been lost on investors, who have piled into the stock like motorheads into a bar on Free Beer Night in Sturgis, N.D. In the after-hours, the stock hit an all-time high of $88.50. With the Street estimating just 12% revenue growth next year, it seems analysts will have to bump up their numbers. If the company were to grow toward the high-end estimate of $3.66 billion, Polaris would likely earn somewhere close to $5 per share. If that were the case, I would easily be able to see Polaris shares trade above $100.

I'm not entirely sure why motorcycles and off-road vehicles are selling, but they are. Harley Davidson is expected to report Tuesday, and if this report is as strong as that of Polaris, investors will ride away with big gains.

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