Shares of the United States' largest pool supplies distributor, Poolcorp (POOL 1.08%), were up 5% as of 12:45 p.m. ET on Thursday, according to data provided by S&P Global Market Intelligence.
Buoyed by news earlier today that inflation continued to ease, Poolcorp's stock popped on the higher probability of lower interest rates coming before year's end.
Is the end of Poolcorp's down cycle finally in sight?
Thanks to the easing inflation seen in Thursday's most recent report, the odds of a 25 basis point rate cut increased to 88% and 52% in September and December, according to the CME FedWatch tool. These potentially lower interest rates are important to Poolcorp as the company generates roughly 14% of its sales from new pool construction.
These new pool builds tend to follow new housing starts in the U.S., which should theoretically rise over time as interest rates decrease and the country's undersupplied housing inventory continues to play catch up. Furthermore, these lower rates could also help make renovating and remodeling pools slightly more affordable for Poolcorp's customers. These renovation and remodel sales accounted for around 24% of the company's revenue.
Down 46% from its all-time highs, Poolcorp's stock could be in the early stages of a rebound as its more cyclical business segments see some signs of relief further down the road. Ultimately, while Poolcorp is tied to the cyclical U.S. housing industry, it generates over 60% of its sales from non-discretionary and often recurring purchases like pool chemicals, filters, and other maintenance products.
Thanks to this stable sales base, management still expects the company to make a little over $11 in earnings-per-share (EPS) in 2024, leaving it at a valuation that could prove to be a once-in-a-decade opportunity over the long haul.
