The pandemic lockdowns are over, but consumers are still spending on renovations to enjoy more leisure time at home, Deutsche Bank said, predicting that Pool Corp shares could rally nearly 30% from here. The stock added 4% Wednesday after analyst Joe Ahlersmeyer upgraded the pool construction company to a buy from a hold rating, saying that shares and earnings guidance should surprise to the upside. “While we may be a bit early and while the stock may be choppy around the 4Q22 print, we expect the shares to ultimately follow the fundamentals this year, and increased cash flow and buybacks should provide meaningful additional support for the shares to outperform,” he wrote in a note to clients Tuesday. Despite concerns of slowing spending on the horizon, Deutsche Bank expects higher-priced remodeling to hold up as homeowners seek to improve their homes to enjoy and sell at a higher price. Investors have also come to believe that much of Pool’s success hinges on benefits from pandemic stimulus and lockdowns. But those concerns appear misguided, according to Ahlersmeyer. The analyst said a “growing faction of investors have begun to appreciate that the expansion in the business has been driven by structural forces including sticky non-commodity pricing (~+30%), acquisitions (nearly +20%), growth in the installed base (nearly +10%) share gains (~+25%) and higher spend per pool primarily from higher-value products.” Deutsche Bank boosted its price target on Pool shares to $417 from $350, representing an upside of 28% from Tuesday’s close. At the same time, Ahlersmeyer trimmed 2023 EPS estimates by 3% and shared a 2024 estimate of $21.49. Shares shed 46.6% in 2022, but have already risen 13% in the new year. — CNBC’s Michael Bloom contributed reporting
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