Harley-Davidson Fights Back from Negative Analysis
June 10, 2009 by
Filed under Articles
Ockham Research submits:
Harley-Davidson, Inc. (HOG) has endured some very bitter comments from analysts in the past couple of trading sessions. On Friday it was a downgrade to “Sell” from a Citigroup (C) analyst that sent shares tumbling 7% on the day. On Tuesday a research note out of UBS (UBS) piled on the bad news, as they revised their earnings estimates downwards because second quarter sales results appear to be worse than anticipated. However, in contrast to the sell-off instigated by the Citi analyst, Tuesday the stock fell close to 10% in the morning and then battled back throughout the day to end nearly even for the trading session. The fact that HOG shares rebounded so strongly could be a signal that the bulls are taking control and the shares will be resilient to further weakness.
It is no surprise that this market environment is a very difficult one for the iconic Harley-Davidson brand. The company’s sales are slumping down 35% from last year in the second quarter, as referenced by the UBS analyst. The obvious problem is that no one needs to buy an expensive motorcycle, and there is no doubt that sales of luxury goods are going to struggle in a recessionary spending environment. Furthermore, the secondary market for Harleys has never been more active as cash strapped Harley owners look to unload their bikes for cash, and even worse for Harley, used bikes that have been repossessed from less than creditworthy borrowers. Which brings us to the anchor that has weighed down Harley more than any other, Harley Davidson Financial Services or HDFS. HDFS was greatly affected by the credit crisis as the secondary market for Harley loans vanished. At the same time, HDFS
was making loans to sub-prime borrowers in order to boost slumping sales as we detailed back in December of 2008 in Not So High on the HOG. That was a recipe for disaster as evidenced by the stock’s substantial decline.
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