Please ensure Javascript is enabled for purposes of website accessibility

Why Harley-Davidson's Shares Tumbled 5% This Morning

By Todd Campbell – May 28, 2020 at 1:10PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Analyst comments in Barron's are weighing on the motorcycle company today.

What happened

Shares of Harley-Davidson (HOG -2.71%) lost 5% of their value in early trading on Thursday after Wedbush analyst James Hardiman was quoted in Barron's warning lower used motorcycle prices could weigh down demand. As of 12:30 p.m. EDT, shares had recovered to a 3.7% decline.

So what

The consumer discretionary company is a goliath in motorcycle manufacturing and sales, but revenue has been hamstrung by COVID-19-related increases in unemployment, and according to Hardiman, weak pricing for used models suggests the company's road to recovery could be longer than some might think.

A rider on a Harley-Davidson motorcycle.

Image source: Harley-Davidson.

According to Barron's, Hardiman reiterated a neutral rating on Harley-Davidson on Wednesday, citing troublesome pricing trends, including prices for 2019 models that are 13% below manufacturer's suggested retail price. One year ago, the discount on new bikes was 8%. Hardiman also highlighted pricing is even worse for models from 2017 and earlier, potentially increasing credit risk at Harley-Davidson Financial Services, the company's financing arm. Lower trade-in values could contribute to sluggish sales this year since many buyers are repeat customers, according to Hardiman.

Now what

Harley-Davidson's first-quarter conference call offered shareholders few green shoots. Unit sales declined 17.7% year over year to 40,439 because of a 15.5% decline in the U.S. and a 28.4% decline in Europe, the Middle East, and Africa, or EMEA. That translated into an 8.1% year-over-year dip in revenue to $1.1 billion and a decline in net income to $69.7 million from $128 million in the same quarter last year.

The lackluster performance prompted management to remove its full-year financial guidance and cut its dividend over 90% to preserve liquidity. Given uncertainty over how quickly motorcycle volume can recover, and risk that a second wave of COVID-19 could emerge, Hardiman is maintaining a price target of $19 per share for the company, or about 20% lower than shares are trading currently.

 

Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Harley-Davidson, Inc. Stock Quote
Harley-Davidson, Inc.
HOG
$34.88 (-2.71%) $0.97

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
332%
 
S&P 500 Returns
104%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.