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Research analyst, valuentum
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Putting the majority of the blame on the weather, industry leader Pool Corporation (NASDAQ:POOL) reduced its full-year earnings outlook by 10 cents per share. The company initially anticipated earnings per share of $2.13-$2.23, but it has reduced that figure to $2.03-$2.13 per share. We still believe shares are overvalued, despite the retracement today.


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Not surprisingly, the company blamed "cooler and wetter" weather in North America and Europe for delaying pool openings and purchases. Nevertheless, Pool Corp seemed confident in its revised full-year guidance despite the challenging macro situation. Surprisingly, the company has held up relatively well during the past five years. In fact, we've seen the firm do a tremendous job of growing sales and earnings since the end of the Great Recession. The firm even managed to turn a profit in the midst of its worst year in recent memory (2009). In our view, Pool Corp is a well-run business, but operates in a highly cyclical industry.

A 10 cent earnings guidance cut isn't material to our fair value estimate, but we can see why shares would retreat from lofty levels (they are down about 6% today at the time of this writing). Shares of this highly-cyclical company are up 23% year-to-date and still trade at 25-26x 2013 earnings. The firm will continue to be highly sensitive to any negative news going forward, which may be the catalyst behind additional profit taking.

Valuentum's Take

On a fundamental level, Pool Corp has managed to stay profitable through the depths of the recession while exercising enough fiscal conservatism to avoid over-leveraging. In any case, because of its cyclical nature, we would demand a wide margin of safety before considering the firm for the portfolio of our Best Ideas Newsletter. At current levels, shares of Pool Corp remain expensive (they are trading above the high end of our fair value range). At the time of this writing, Johnson Outdoors (NASDAQ:JOUT) has the most attractive valuation within the sporting goods space.

Source: Pool Corp. Remains Overvalued Despite Fall