A bumpy ride
Daniel Miller: Maybe calling Polaris Industries' (NYSE:PII) past 18 months a bumpy ride is being nice. Either way, it hasn't been a fun journey for investors that had grown accustomed to excellent financial performance. That abruptly changed in mid-September when management announced it was lowering full-year earnings guidance to the range of $3.30 to $3.80 per share -- a staggering $2.50 to $2.70 lower than previously expected.
That brutal earnings slash was due to RZR thermal-related repairs and expenses, which turned out to be more complicated than originally planned. As someone who covers the automotive industry, I can say that it's not unusual for major autos with large and expensive recalls to bounce back quickly, and Polaris should get back on track sooner rather than later.
The company has a phenomenal reputation for producing innovative products such as Slingshot, and well-known brands such as Indian Motorcycles, which have driven its top line higher. Management still expects to grow sales to $8 billion by 2020, a 12% compound annual growth rate (CAGR), and for its net income to increase to more than 10% of sales by 2020, a 13% CAGR.
One piece of evidence, in my opinion, that management believes this expensive recall to be a bump in the road rather than a new trend is the recent acquisition of Transamerican Auto Parts (TAP) for $740 million. It's a highly complementary business for Polaris with cost synergies and cross-selling potential. Polaris wouldn't be shelling out capital for such an acquisition if it wasn't confident in its ability to bounce back from the expensive recall. If Polaris can continue to innovate, reach its 2020 financial goals and bounce back from this expensive recall, there's no doubt it's a top bargain stock today.
A beaten-down footwear stock
Tim Green: Shares of footwear company Skechers (NYSE:SKX) have been hit hard over the past year as explosive growth has given way to merely impressive growth. During the second quarter, revenue rose by 9.7% year over year, well below the typical growth rates of 25% or more the company achieved over the past couple of years. After an analyst downgrade last month sent shares of Skechers tumbling further, I jumped on board and bought the stock near its 52-week low.
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