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Bear of the Day: Pool Corp (POOL)

Pool Corporation (POOL) currently lands a Zacks Rank #5 (Strong Sell) with its Leisure and Recreation Products Industry in the bottom 17% of over 250 Zacks industries.

Although Pool Corp is the world’s largest wholesale distributor of swimming pool supplies, equipment, and related products, the company is dealing with weakening demand attributed to the economic headwinds of higher interest rates.

Investors may want to be cautious at the moment as this caused Pool Corp to significantly miss its first quarter top and bottom line expectations in late April and lower its guidance.

The company also attributed its dim quarterly results to unfavorable weather conditions in the Western United States as higher precipitation and cooler temperatures compounded the weaker demand.

Earnings Miss

Pool reported its first-quarter results on April 20 with earnings of $2.46 per share missing EPS estimates of $3.26 a share by -24%. Sales also came up short by -7% at $1.20 billion compared to top-line estimates of $1.29 billion.

Year over year, earnings declined -47% with EPS at $4.41 in Q1 2022. Sales were down -15% from the prior-year quarter. This was certainly alarming to investors and indicative of the tough operating conditions.  

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Zacks Investment Research

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Declining Earnings Estimates

More concerning, earnings estimate revisions have continued to drop in the last week and had already declined over the course of the last quarter. Fiscal 2023 earnings estimates are now down -15% over the last 90 days with FY24 EPS estimates dropping -9%.

Pool Corp earnings are now forecasted to dip -17% this year at $15.32 per share compared to EPS of $18.43 in 2022. Fiscal 2024 earnings are expected to stabilize and rebound 10% but the declining earnings estimates are cause for temporary concern as Pool Corp stock is not cheap at $351 per share.  

Pool Corp is a leader in its space but trades at 22.3X forward earnings which is double the broader industry average of 10.3X, and its ability to command a premium appears to be fading at the moment.

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Zacks Investment Research

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Bottom Line

While Pool Corp stock is still up +16% year to date it could start to give back some of these gains on a less favorable outlook. Given that a pullback or correction looks more likely for Pool Corp stock investors may want to stay clear for now.

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