In the third quarter, Polaris Industries, Inc. (PII) continued it's more than 5-year streak of positive earnings surprises. This manufacturer of on-road and off-road vehicles surpassed the Zacks Consensus Estimate by 10.8% in the quarter. With an optimistic guidance and a long-term earnings growth projection of 17.5%, this Zacks #2 Rank (Buy) should surely grab the attention of growth-seeking investors.

Commendable Quarter

On October 18, Polaris Industries posted a 40% year-over-year gain in third-quarter earnings per share to $1.33, beating the Zacks Consensus Estimate of $1.20 by nearly 11%. Revenues grew 21% to $879.9 million.

The revenue and earnings growth was due to strong demand that led to double-digit sales growth in each of its product lines, as well as market share gains for its RANGER and RZR side-by-side off-road vehicles, continued product innovation, manufacturing realignment and cost management programs.

Gross profit rose 26% to $259.8 million in the quarter driven by higher volumes, increased selling prices and cost savings from product cost reduction measures and the manufacturing realignment project. This was partially offset by higher sales promotions and a negative product mix.

Optimistic Guidance

Polaris Industries expects higher revenues and earnings for full year 2012, based on its strategic direction and implementation strategies. The company expects earnings per share between $4.32 and $4.37 for the year, up 35%-37% from $3.20 in 2011. Sales are expected to grow between 19% and 20% from 2011.

Earnings Momentum Cruising Higher

The Zacks Consensus Estimate for 2012 went up 4.8% to $4.39 per share in the past 60 days, reflecting year-over-year growth of 37.1%.

For 2013, the Zacks Consensus Estimate rose 4.0% to $5.19 in the past 90 days, indicating a year-over-year increase of 18.3%.

Valuation is Expensive but Reasonable

The valuation of Polaris looks expensive, which is reflected in its PEG ratio of 1.1. The stock is currently trading at a forward P/E of 18.6x, a premium of 14.1% to the peer group average of 16.3x. Furthermore, the price-to-book of 8.5x and price-to-sales of 1.8x are at significant premiums compared to the peer group averages of 2.8x and 0.5x, respectively. However, the company has a higher 1-year ROE of 50.6% versus the peer group average of 25.9%. The expensive valuation is justified given the company's expanding product line-up and management efficiencies.

Chart Shows Stability

The chart indicates stability as the 50-day moving average remains consistently above the 200-day moving average, avoiding any formation of a new trend. This stock is undoubtedly in a long-term uptrend as it is sitting above a rising 200-day moving average line.

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Founded in 1987 and headquartered in Medina, Minnesota, Polaris Industries Inc. manufactures snowmobiles, off-road vehicles and on-road vehicles with annual sales of $2.7 billion. The $5.6 billion company also offers replacement parts, accessories and recreational apparel. It markets its products through independent dealers and distributors under a host of brands, primarily in the U.S., Canada and Europe.


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