We are downgrading our recommendation on the shares of Pool Corporation (POOL) to Underperform. We are concerned about the pace of recovery, especially in the pool construction/major renovation business.

The stressed economic conditions with high levels of unemployment, foreclosures and a slowdown in the new housing construction market have severely impacted the company’s earnings in the past several quarters. We expect this trend to continue and believe consumers will keep postponing upgrades and delaying maintenance. Also, the company’s business is susceptible to weather changes.

Nevertheless, the company is unquestionably the leader in the industry. The potential for market growth is also significant and the cost containment initiatives augur well. However, we believe that an increase in demand is needed to reap the full benefits of its expense reduction efforts.

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