POOL May Drain a Little
Pool Corp. (POOL) is unquestionably the leader in the pool industry and has a consistent track record of delivering growth in both revenues and earnings. However, the current operating environment remains challenging and although the company stands to reap substantial benefits when the market eventually improves, we see little in the way of a current catalyst that could justify significant price appreciation in the near term.
The downturn in the housing market, adverse weather conditions in key markets and the negative impact of recently opened sales centers make the company's operating environment challenging. We reiterate our Hold rating on shares and believe that a multiple near the low-end of the company's historic range is appropriate at present.
Pool's business is susceptible to weather changes and the products being discretionary by nature, an economic slowdown could adversely impact operating results. There is somewhat of a correlation between the Pool's business and the new housing construction market. Despite the fact that only 10 percent to 20 percent of new pool installations are related to new construction, a housing market downturn has the potential to negatively impact the share price in the short term.
Shares of POOL currently trade at approximately 14.0x our 2008 EPS estimate of $1.29, and at approximately 11.9x our 2009 EPS estimate of $1.51. Over the last five years, shares of the company have traded at forward P/E multiples between 12x and 29x. Our six-month price target of $19 represents a multiple of 15x our 2008 EPS estimate.
Philips Sees Some Biz Dragging
Koninklijke Philips Electronics N.V. (PHG) reported slightly higher-than-expected revenue for the second quarter, as revenue recovered in the Medical Systems Division and there was strong growth in Lighting and Consumer Lifestyle. This led to the company over-performing our revenue estimates while higher gain on stake sale and a lower effective tax rate led to an earnings jump.
The company has worked to improve its cost structure, as its EBITA margins remained flat along with modest revenue performance despite the weaker-than-expected dollar.
Based on these results, we are maintaining our revenue estimates for 2008 and continue to rate the shares of PHG a Hold with a price target of $34.25 per share over the next six months, or between 8.1x8.3x our new 2008 EPS estimate of $4.19.
Philips is in the process of consolidating its Healthcare and Consumer Lifestyle businesses. The company has completed the acquisition of Respironics, Inc. and clinical IT and service provider VISICU Inc. Following the successful completion of the bulk of capital reallocation program, the company has fixed a target group-level 2010 EBITA of 10%-11% with average annual sales growth of 6% and above.
Philips still faces problems with profitability in a few of its business areas, most prominently the company's Connected Displays.
