Zacks_Analysts' Blog : Pool Downgraded to Neutral - Analyst Blog

We recently downgraded our rating on Pool Corp. (POOL) to Neutral from Outperform. The rating was downgraded mainly due to the seasonality of business.

Pool Corp.'s business is susceptible to changes in weather. While abnormally hot and dry conditions are generally favorable for the company's operations, abnormally cool or rainy weather patterns can adversely affect sales.

Normally, sales are benefited by weather conditions in the second and third quarters of a calendar year. Among the two quarters, the second itself generates nearly 70.0% of the total sales leaving a smaller share for the third. Since Pool is entering its third quarter, revenue will likely see a sequential decline.

Based in Covington, Louisiana, Pool Corp. is the world's largest wholesale distributor of swimming pool supplies, equipment and related products. It controls approximately one-third of the pure-pool domestic market share sold through distribution. Management expects modest revenue growth for the remainder of 2011 given the benefits in the first quarter.

However, Pool faces intense competition from many regional and local distributors in its markets and, to a lesser extent, from mass-market retailers and large pool supply retailers that have their own internal distribution networks. The competition is particularly severe in its four large and high density markets in California, Florida, Texas and Arizona. Additionally, the high level of unemployment in those states also poses threat to Pool’s business. These are the factors that hold us back from being too optimistic on the stock right now.

The company’s competitors include Arctic Cat Inc. (ACAT) and Johnson Outdoors Inc. (JOUT). Pool currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.