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Polaris Industries Inc. (PII), Arctic Cat Inc (ACAT): Head Off-Road for a Good Buy

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Polaris Industries Inc. (NYSE:PII)Outdoor activities continue to be a favorite for the weekend enthusiast. Off-road vehicles in particular are becoming more and more popular. As a result, the companies that make all-terrain vehicles (ATVs), snowmobiles and motorcycles are seeing strong demand for their products. The results are evident in both the top and bottom lines of these companies.

Off-road is this company’s business

Polaris Industries Inc. (NYSE:PII) manufactures side-by-side vehicles, ATVs, motorcycles, electric vehicles and defense-utility vehicles. Polaris Industries Inc. (NYSE:PII) also manufactures parts and accessories to go with its products as well as apparel for the outdoor rider. Its products are manufactured and distributed under the names Polaris Industries Inc. (NYSE:PII), Ranger, Victory, Indian and Cross Country.

In July, Polaris Industries Inc. (NYSE:PII) reported record second-quarter earnings. Sales rose 12% to $844.8 million while net income rose 15% to $80 million, or $1.13 per share. For the 16th consecutive quarter, Polaris Industries Inc. (NYSE:PII) gained market share in ATVs and side-by-side vehicles. The gross margin increased 120 basis points to 29.9%. This was due to higher selling prices for its products and lower input costs. The company expects full-year earnings to rise 18% to 20% compared to last year. Full-year sales are forecast to rise 13% to 15% over last year.

Going forward, Polaris Industries Inc. (NYSE:PII) expects significant demand for its new lineup of vehicles. The company is also relaunching the Indian motorcycle brand in August. Polaris acquired the Indian brand 27 months ago and has retooled the company to compete head-to-head with market leader Harley-Davidson, Inc. (NYSE:HOG). Polaris has been able to use its knowledge from building the Victory brand from scratch into the number-two player in heavyweight motorcycles. Indian will also be part of a History channel special highlighting the Sturgis Bike Week.

In terms of selling channels, Polaris already has 125 to 140 dealers in North American and 70 internationally to sell Indian products. On the company’s earnings call, CEO Scott Wine said:

Indian is ready to launch and we’re excited to bring choice back to the American motorcycle market. America’s oldest motorcycle brand has a story and an occasionally troubled history, but we are confident that this year and this century, we will restore Indian to its prominence.

Best-known for its snowmobiles

When one thinks of Arctic Cat Inc (NASDAQ:ACAT), the first thing that comes to mind is snowmobiles. The company also makes ATVs and side-by-sides under the Arctic Cat Inc (NASDAQ:ACAT) name. The company also markets outerwear for snowmobile and ATV riders.

Last fiscal year was a banner year for Arctic Cat Inc (NASDAQ:ACAT). Total sales increased 15% to $671.6 million. Sales were driven by strong demand for the company’s ATVs and Wildcat side-by-side products. Earnings per share rose 68% compared to the prior year. Arctic Cat Inc (NASDAQ:ACAT) expects this fiscal year’s earnings per share to rise 10% to 13%.

There is plenty of room for Arctic Cat Inc (NASDAQ:ACAT) to grow, especially considering that it is smaller than Polaris and Honda Motor Co Ltd (ADR) (NYSE:HMC) with a market cap of only $655 million. Because it’s smaller than Polaris and Honda Motor Co Ltd (ADR) (NYSE:HMC), Arctic Cat Inc (NASDAQ:ACAT) doesn’t get as much attention as the others do. However, that is changing as Arctic Cat gains market share in ATVs and side-by-sides and expands outside of its core snowmobile business.

Last year, ATV and side-by-side sales rose 32% to $299.8 million, accounting for almost half of all sales at Arctic Cat. The company has plenty of room for growth as it expands its dealer network and expands into international markets.

This year, Arctic Cat is introducing several new models to capture growth. Arctic Cat is introducing a new side-by-side product called the Wildcat Four, which will have four seats instead of the usual two. The company is also introducing 10 new snowmobile models to boost sales.

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