Wunderlich Cuts Polaris Estimates, Sees Competition From New Honda Product

In a report published Wednesday, Wunderlich analyst Rommel Dionisio maintained a Buy rating on Polaris Industries Inc. PII, while lowering the price target from $178 to $159, due to concerns regarding the impact of product launches by two of Polaris' prominent competitors on the company's core side-by-side (SxS) business.

According to the Wunderlich report, "Such increased competition comes as the SxS market overall has decelerated to the point where it is hardly cannibalizing the single-seat ATV market, where Polaris's market share is much lower than it is for side-by-sides."

Although Polaris has been able to weather product launches by smaller competitors, the analyst expressed concern regarding the impending product launches by Honda Motor Co Ltd (ADR) HMC and Yamaha Corp (ADR) YAMCY.

According to Dionisio, both companies "are introducing this season new SxS models of significant technical proficiency, backed with aggressive marketing support."

Channel checks also suggest that dealers believe that Honda's to-be-launched Pioneer 1000 SxS model could be an important competitive threat for Polaris' core Ranger 900 model, given its more powerful engine and innovative six-speed transmission.

However, Polaris had also unveiled its new top-of-the-line sports model, the RZR XP Turbo EPS, which features a turbo-charged engine that can generate 144 horsepower. The analyst believes that while Polaris holds a dominant position in the sport SxS market, the new model could help the company defend its market share, rather than helping gain further share.

The total revenue and EPS estimates for 2016 have been lowered due to "the heightened competitive environment in the core SxS segment, due to major new product introductions from Honda and Yamaha as well as still elevated competitive promotions," Dionisio explained.

If the company fails to continue gaining share of the SxS market, the analyst fears that the stock could witness multiple compression from the premium it has been trading at versus the peer group.