Morgan Stanley has upgraded Polaris (NYSE:PII) to an Overweight rating (From Equal-Weight) and raised their 12-month price target on the stock to $113.00 (From $103.00) following a 2023 where the automaker underperformed compared to the market and peers.
“We see attractive value in 2024 with earnings revisions approaching an inflection point as demand proves more resilient than expected and opportunities to recapture cost inefficiencies and drive further optimization catalyze profitability upside.” Wrote Morgan Stanley analysts in a note.
More specifically, Morgan Stanley anticipates that the declining trajectory of earnings revisions is nearing a bottom, with a shift in bias towards the positive. The consensus for sales in 2024 reflects a 15% decrease from the peak observed in early 2022, and the EPS has experienced a decline of approximately 30%, dropping from $12.50 to around $9.
Morgan Stanley recognized the fluctuating nature of retail demand, but they observe that the market is anticipating a decline in demand, which analysts consider improbable. This belief is supported by their analysis and the robust performance of PII's utility segment, constituting 60% of ORV demand.
Additionally, PII is expected to overcome approximately $70 million in cost inefficiencies in the second half, leading to an enhanced outlook for decremental margins. Morgan Stanley believes the market is not fully acknowledging this, contributing to their above-consensus EPS forecast for 2024.
Shares of PII are up 2.25% in pre-market trading Wednesday morning.