Arctic Cat Inc. (ACAT) announces a big buy back and sees estimates move higher making it a Zacks #1 Rank (Strong Buy).
Company Description
Arctic Cat Inc. (Nasdaq:ACAT) produces all-terrain vehicles (ATVs) and snowmobiles under the Arctic Cat brand name, as well as related parts, garments and accessories. The company markets its products through a network of independent dealers located throughout the United States and Canada, and through distributors representing dealers in Europe, the Middle East, Asia and other international markets.
Earnings Estimates Move Higher
Analysts have moved their estimates higher for 2012 several times throughout 2011. The Zacks Consensus Estimate has moved from $0.80 in February 2011 to the current level of $1.22.
Similarly, estimates for 2013 have moved from $0.99 in June 2011 to the current level of $1.84. These higher estimates will likely lead to higher valuations as investors look to future earnings when making an investment.
Stock Buy Back
On December 28, 2011 ACAT announced it purchased all of Suzuki Motor Corporation’s approximately 6.1 million shares of ACAT Class B stock for $79.3 million. The buyback reduces ACAT outstanding shares from 18.4 million to 12.3 million and left the company with $60 million in cash on the balance sheet. A buyback of this size is significant as increases percentage ownership of all shareholders by about 33%. Likewise, the lower number of shares ends up boosting the EPS calculation and sends earnings estimates higher.
Earnings Release and Conference Call
ACAT is releasing earnings today, January 26 and is slated to hold a conference call with analysts and investors. Normally, conference calls are held before or after market hours, but ACAT has scheduled its call for noon EST. Following the buyback, the tone is likely to be upbeat and could provide for extra lift during trading hours.
Valuations
Shares of ACAT trade at a premium to the industry average in terms of both trailing and forward PE. On the more conservative measure of price to book, the premium is less pronounced for ACAT with shares trading at a 2x multiple compared to the industry average of 2.8x.
In terms of price to sales, a 0.8x multiple for ACAT is a significant discount to the industry average of 2.3x.
The Chart
The price and consensus chart for ACAT shows how closely the stock has traced the future earnings estimates. The recent buyback is reflected in the sharp increase of 2012 estimates. As sales of its ATV’s and snowmobiles increase, the price to sales multiple will like increase as will earnings, both of which will send share prices higher.
Brian Bolan is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Small Cap Trader service
