Why Polaris Stock Revved Higher Today
Key Points
Separating its Indian Motorcycle business should be immediately accretive to Polaris.
Indian sales represented about 7% over the 12 months ended June 30.
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Powersports vehicle maker Polaris (NYSE: PII) announced a restructuring move today that sent shares zooming higher. The maker of all-terrain vehicles (ATVs), side-by-side vehicles, snowmobiles, motorcycles, and boats is separating its Indian Motorcycle business into a stand-alone company.
Investors cheered the news for several reasons. Polaris shares were higher by 10.4% as of 9:55 a.m. ET.
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Polaris is creating value for shareholders
Polaris is separating its Indian Motorcycle business aiming to improve its earnings profile. The company will sell a majority stake in Indian to private equity firm Carolwood. The iconic motorcycle brand contributed about 7% of Polaris' revenue in the trailing-12-month period ended June 30.
Polaris CEO Mike Speetzen said he expects both Polaris and Indian Motorcycle to benefit from the move. He stated this in the press release:
For Polaris, the sale will further strengthen our focus on the areas of our portfolio that offer the strongest growth potential and allow us to accelerate investments in key initiatives and create wins with customers and dealers. It also will unlock greater long-term value for Polaris and our shareholders, with immediate value creation that we expect will become increasingly meaningful over time.
Polaris has apparently been struggling to get positive contributions from that business. The company said upon closing, the deal will increase adjusted earnings per share by about $1 and annualized adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by $50 million.
That's a positive for existing shareholders, and investors are showing their support by boosting Polaris shares higher today.
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Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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