Monday, April 16, 2007

Calls of Note Part 3

- Baird is cautious on Pool Corporation (NASDAQ:POOL) lowering their tgt to $40 from $41 after reducing 1Q07 EPS estimate from $0.10 to $0.07 (consensus) with other minor fine-tuning. Temperature data, channel checks and comparable-company reports imply a lackluster 1Q07 and 2007 outlook for POOL. They remain cautious on the stock going into the quarterly release and key selling season.

Firm's channel checks imply that MRO sales (approximately 60% of POOL's gross profits) are about as expected, nationwide. Their concern has been the 40% of gross profits driven by new pool construction. Cyclically, annual change in median home value (ammunition for aftermarket pool construction) will likely fall for the first time in POOL's public history during 2007 -- perhaps more acutely in key sunbelt states.

Weather has not cooperated in 2007. Distributors across in middle and northern states responded that the selling season should have started three weeks ago, but hasn't. Other sellers of discretionary consumer productsare seeing weak conditions. Last week, Marine Max (HZO) announced a weaker 2007 outlook. Polaris (PII) confirmed last week that end demand for ATVs, motorcycles and snowmobiles remains weak. POOL is scheduled to report on April 19.

Baird rates POOL Neutral, Higher Risk based on 11.5x EV/ 2007E EBITDA, which is a slight discount to historical average of 12x. The target also represents 20x 2007E estimate of $2.03, which is approximately the average historical valuation since 1998.

Notablecalls: POOL has proved to be a smart shorting opporunity over the past year or so as it is closely tied to the housing industry. Given the high likelyhood of futher downside in housing, POOL's likely disappoint over the next year or so.

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