Don't Get Snowed by Polaris Industries

I was on CNBC's Fast Money last night, in the feisty "Street Fight" segment, taking on trader Tim Strazzini on Polaris (PII), which he likes.

This is the all-terrain vehicle/snowmobile company whose core business continues to struggle in the face of industry woes and stepped up share stealing (according to AG Edwards) by Yamaha and Bombardier. Bulls point to the company's line of motorcycles -- hardly a space without competition, including the likes of Harley Davidson (HOG), which recently noted a softening in its domestic biz.

Investors will be watching to see what Polaris says about dealer inventory, which has been bulging. This is of considerable concern because if the inventory can't be sold, Polaris could be on the hook to take it back.

Here's the puzzling part of the story: The stock actually starting rising a week ago after Polaris offered up "new" sales and earnings goals for 2009. The stock's rise makes no sense because the $2.2 billion sales forecast is DOWN from the $3 billion the company has been using since 2004 and as recently as the July earnings call.

Also down: implied margin. With a forecast of $150 million in net income from operations, the margin will be more like 7%, not the 9% the company originally spelled out in earlier forecasts.

The company's explanation -- not in the press release, but to me -- is that the numbers came down after Polaris' decision last month to sell most of its stake in KTM PowerSports. Polaris had been looking to buy the whole company for its European stronghold. The new forecast, a spokesman says, "is internally driven -- not dependent on us completing some kind of acquisition or entering a new segment."

Perhaps, but as far back as 2001 the company was making presentations that called for $3 billion in revenues this year. So much for credibility on the forecasting front.

Meanwhile, as regular readers know, I'm not a fan of CEO bonuses being based exclusively on EPS performance. But that's how Polaris CEO Thomas Tiller gets his. No wonder the company is aggressively trying to buy back stock, and not just with any buyback but a so-called "accelerated share repurchase" plan, which is a financially convoluted deal that appears to be catching on in corporate America. (Ironically, the banker involved in the deal -- in this case, Goldman Sachs -- effectively shorts the company's shares temporarily!) It's one thing to see buybacks of any kind when business is growing but the stock is slumping; at Polaris, it's not.

Polaris 1-yr chart: