Tuesday, July 03, 2007

Pool Corp (NASDAQ:POOL): Color on warning

Swimming pool distributor Pool Corp (NASDAQ:POOL) said on Monday that it expected full-year profits to fall signficantly below its prior forecasts. In a statement, the Louisiana-based wholesale distributor said it expected full-year earnings to be in the range of $1.75 to $1.85 per diluted share compared with previously projected range of $2.00 to $2.10 per share.

- Baird notes POOL cited decreased new pool construction in FL, AZ and CA which constitute three of the company's four largest markets (the fourth being TX) due to a slowing housing market. This is more consistent with firm's outlook which is for new pool construction down between 10-15% given deteriorating home values and consumer uncertainty.

There is currently a large short interest in the stock (10 million shares, or 18.3 days to cover), so short covering could support the stock in the near term. POOL hasdeclined 11% since its most recent peak on June 15. Either way, they would become more interested in POOL in the low $30s and their outlook is unchanged in the $35-$40 range.

Baird believes investors have time with POOL because they think that 2007 will likely be more volatile than average and with expectations of a stronger 2H07, there is the additional risk of downside if 2H07 does not come through as expected. Maintains Neutral.

Notablecalls: No surprises here. The housing market stinks and that put pressure on the pool business. The insiders knew it and sold their stock and the market saw it coming and sold. Just take a look at POOL's chart over the past couple of weeks. Heck, even Barron's figured it out last week.

Looks like Wedbush was the only one that didn't see it coming as they upped their tgt to $46 from $41 (reit Buy) on June 20.

Short interest stands at over 20% of float. That's big. The stock should be down 5 bucks today but I suspect we won't see such downside. More like 3-4 bucks. I think anything beyond 4 bucks is buyable for a bounce. Please do note I think things will continue to deteriorate in housing, possibly putting additional pressure on POOL. The only reason for buying the bounce is the huge short interest. POOL had become a somewhat crowded short and I think some of these positions will be covered into today's weakness.

I'm also very interested to know what Morgan Keegan has to say about POOL following the warning. Will do a follow-up.

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