What happened

Shares of Harley-Davidson (NYSE:HOG) 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.

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