DENVER — Based on discussions with investors and bottom-up stock analysis, RBC Capital Markets Corp. analyst Edward Aaron says he believes leisure product stocks are beginning to anticipate a retail demand recovery.
The leisure product stocks monitored by the company include Brunswick, Harley-Davidson and Polaris.
“While we have not yet seen evidence of a broad demand inflection, industry trends are moving in a positive direction,” Aaron said in a recent investment opinion. “Our recent checks point to a stable but still soft demand environment during the seasonally slow Q4 and into January. However, we are encouraged by rate-of-change improvement for most categories, low dealer inventory levels, normalized discounting activity and marginally improving credit availability.”
While the leisure vehicle sector has performed well of late, Aaron says last year’s returns were primarily driven by margin surprises enabled by restructuring actions, improved inventory management and a stabilization of demand.
Stock performance in 2011 will be far more contingent upon retail activity.
“A bet on improving retail sales seems sensible from a risk/reward perspective,” Aaron said. “A little demand recovery would still go a long way with these stocks. It would provide upside to current estimates, and optimism over the start of a recovery following average peak-to-trough category declines of about 50 percent would have positive valuation implications, in our view.”
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