Why Harley-Davidson Inc Shares Could Stall

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Harley-Davidson Inc (NYSE: HOG  ) slipped more than 1% this morning after KeyBanc downgraded the motorcycle giant from buy to hold.

So what: Along with the downgrade, analyst Scott Hamann removed his price target of $80, suggesting that he sees little to no upside to the current price. So, while momentum traders might be attracted to Harley's price strength during the past year, Hamann's call could reflect a sense on Wall Street that its valuation is becoming a bit stretched.

Now what: According to KeyBanc, Harley's risk/reward trade-off isn't too appealing at this point. "[W]e now see a somewhat heightened level of risk in the near term given recent indications of sluggish year-to-date motorcycle industry retail trends that appear essentially flat against easier 1H13 compares (-6.2%), corroborated by both our preliminary channel check work and commentary from industry participants," said Hamann. "Additionally, while we estimate HOG retail again outpaced the industry and increased in the low-single-digit range for 2Q14, we believe this setup compares unfavorably to full year shipment guidance of +7-9%, given that HOG anticipates broader shipments to more closely track retail, trailing by a few hundred basis points to reflect initial street bike sell-in." When you couple that downbeat view with Harley's still-hefty debt load and steep-ish P/E of 20, it's tough to disagree with KeyBanc's cautious stance. 

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