Wednesday, Baird adjusted its financial outlook for Pool Corp (NASDAQ:POOL) shares, reducing the price target to $380 from $390 while keeping a Neutral rating on the stock. The revision reflects anticipated softer demand and margin conditions.
Following the first quarter results of 2024, which included a significant $12.6 million import tax reversal that increased the gross margin from 29.1% to 30.2%, Baird has lowered its gross margin expectations for the second quarter of 2024. The firm has expressed uncertainty about whether a 30.0% gross margin is achievable.
The report from Baird highlighted several factors contributing to a subdued forecast for Pool Corp. The analyst cited low existing home turnover and sustained high interest rates as obstacles, particularly affecting the market segment that depends on financing.
These conditions are expected to dampen new pool installations and renovations, leading to predictions of a challenging year ahead for the company in 2024.
Baird's lowered price target for Pool Corp is based on a steady 18 times enterprise value to estimated 2025 earnings before interest, taxes, depreciation, and amortization (EV/2025E EBITDA) and 25 times price to earnings (PE) on estimated 2025 earnings per share (EPS).
The firm's outlook takes into account the broader economic factors that could impact consumer spending and investment in the pool industry.
Despite the downward revision in the price target, Baird's neutral stance on the stock remains unchanged. The firm's position suggests a wait-and-see approach, reflecting the current uncertainties in the market and the specific challenges faced by Pool Corp.
In summary, Baird anticipates a less favorable environment for Pool Corp due to weaker demand and margin pressures. The firm's adjusted price target and ongoing neutral rating indicate caution amid the potential headwinds for the company's performance in the coming year.
InvestingPro Insights
InvestingPro data provides additional context to Baird's recent analysis of Pool Corp (NASDAQ:POOL). With a market capitalization of $13.71 billion and a trailing twelve months P/E ratio of 27.52, the company reflects a significant presence in the market. Despite recent challenges, Pool Corp has maintained a dividend yield of 1.34%, with a notable 20.0% dividend growth in the last twelve months as of Q1 2024. This underlines the company's commitment to shareholder returns, having raised its dividend for 13 consecutive years and maintained payments for 21 years.
Analysts have revised their earnings expectations downwards for the upcoming period, signaling caution. Nevertheless, Pool Corp's liquid assets surpass its short-term obligations, indicating financial resilience. Moreover, the company has operated with a moderate level of debt and is projected to remain profitable this year, as it has been over the last twelve months. This profitability is reflected in a 13.13% return on assets for the same period.
For readers seeking deeper insights, InvestingPro offers additional tips on Pool Corp, highlighting aspects such as trading at a high Price/Book multiple and the company's strong return over the last five and ten years. To access these insights and more, consider the InvestingPro platform, which includes a total of 9 InvestingPro Tips for Pool Corp. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, providing valuable guidance for your investment decisions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.