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Slaughtered HOG a bargain

Posted Oct 18 2007, 02:17 PM by Robert Walberg
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When someone mentions overnight delivery you think of FedEx; photocopying -- Xerox; search -- Google; and motorcycles -- Harley Davidson. I'm not a motorcycle guy, yet there's something mythical about the idea of hopping on a big Harley and hitting the open road. Maybe it's the sense of freedom, or simply a desire to be like Peter Fonda in Easy Rider, I don't know, but there's definitely something very American associated with owning and riding a HOG. 

Yet despite its incredible brand strength and customer loyalty, the company is struggling to grow sales and earnings. Just last month management was forced to lower its earnings guidance due to sluggish U.S. demand. The company also slashed production for the rest of the year and announced that it would not predict its financials for  fiscal year 2009. In response to the disappointing news investors slaughtered HOG, and the stock is now down 28% over the past year. 

Investors will learn more about Harley's fate tomorrow morning when the company releases its quarterly earnings numbers. The consensus estimate on Wall Street calls for a gain of $1.06 per share, down 12% from year-ago levels. But don't spend too much time worrying about the earnings number as it's unlikely to be materially different from the recent guidance.  Instead investors need to focus on inventories and margins. Persistently high inventories have pressured operating margins over the past year and until the inventory levels start to come down Harley will struggle to deliver the kind of bottom-line growth investors have come to expect.

That's the bad news, now for the good.  International sales remain strong, Harley is sitting on a pile of cash, the company generates over $300 million in free cash flow each year and there's that invaluable brand strength. Could the stock slip another 10% or so?  Sure.  Consumers are feeling the pinch from the lousy housing market, tight credit and high energy prices so plunking down upwards of $25,000 for a motorcycle -- even a hog -- might not be a priority.

Nevertheless, most of the bad news is already reflected in the stock so long-term investors should use any news related weakness tomorrow as a buying opportunity.  Buy near $46, with a 18-month target of $65.

Comments

 

I prefer HOPPING on my hog vs hoping on my hog.  My hog is reliable.

I own a harley and they don't hold there value like they use to . I love the bike and the open road I could have saved money and gotten a honda but, I buy American next time I might swing the other way .

I have own and rode Harley's for over 45 years and don't care that I will never own any thing else to ride myself.I am 59 and have a 24 year old wife.

The reason that Harley is not what it used to be is because the company has turned its back on its core customers in favor of the quick buck.  It has always been the die hard biker, not the weekend motorcycle enthusiast, that has kept Harley alive in the lean times.  If you do not understand the difference between those two then you have no business on a Harley in the first place.  

Apparently, somone in management at Harley has forgotten that.  They now sell things like V-Rods, the definitive anti-Harley.  This monstrosity is everything that Harley has always stood against.  It used to be that when you walked into a Harley dealer you got grease and oil on your shoes, now it is more like walking into a chic boutique on the magnificent mile.  In addition to that the company has caved into pressure from the government and very soon Harley's will not be customizable.  What good is it to own a Harley if it looks just like everyone else's Harley?  Harley may be just over 100 years old but it won't see 150  if they keep going the way they are going.

Robert, you obviously don't know much about Harley, how they run their company, but more importantly, how they DON"T make new products!!

HOG is about to become slaughtered in the next few years.  The baby boomers (such as yourself) that want to buy this "freedom" (aka all the wanna-be bikers) have now either already bought their bikes or just can't afford to buy a bike.

Resale value is for crap on Harleys now, there is no huge demand, the motorcycle "bubble" of the early 2000s is now over and the "new" generation (under 40) much prefers the better riding, more reliable, more powerful foreign bikes.

Forever Harley has taken the attitude of "they will buy us just because we are Harley" and now it is finally biting them in the butt.

Harley will die a slow death over the next 5 to 10 years and investing in HOG is a HUGE mistake.

I can't help but ad my 2 cents. I been riding Harley's sense I was 15, now I'm 62. I bought my first one in 1960 and was hooked ever sense. I didn't get into the stock thing until 1987, and have earned enough from Harley stock to pay for 3 or 4 new Hogs and keep a beautiful woman on the back. I'll keep my trust in hog and be carefull of the ladies.

I'm not sure I understand why a weekend enthusiast or someone who isn't a 'biker to the bone' shouldn't own a Harley.  I agree with Leonard that the die-hards have kept things afloat for HD over the years but does that mean that people who can afford one but don't decide to center their whole identity around two wheels should stay off?  I'm not big on V-Rods personally, but if that style is what somebody is after, don't they deserve the chance to own something made by HD?  

Leonard is 100% correct. I bought my first Harley in 1979 at age 15 and have owned over a dozen. I just bought an 06 FXDWGI, from the auction, my third Dyna. I love it, but I will not EVER buy anything from the $100 store again unless absolutely necessary.They sold us real Bikers out. We stuck with them when they were down and they only care about the money. They have no integrity. This will be my last MC and I also have it on good word that HD is going to soon be making mostly ying-yang style bikes to cater to the younger crowd. I think even then, their ship is sinking, and their rep is already bad.When I bought my first one, they were begging me and giving me anything I wanted. The last time I went into one of their shops for a part, they looked at me with all the tattoos and long hair and turned up their noses at me. I bet most of those arrogant yuppies ride piglets, if they even ride at all. They can keep their bleeping stock.

Ah yes, the ole "I buy American" song and dance. I used to be that way with my cars--till I noticed how many "American" cars were built overseas. My F150 was built in Mexico and Canada. The GM Aveo (spelling?) is imported from S. Korea, under the GM logo (0%made here). Meantime, Toyota opened the largest car plant in the world in San Antonio, TX. Mitsubishi is made 80% in the U.S. It seems, to keep Americans employed you need to buy a "foreign" car. So, last year I traded in my F150 on a Mitsubishi. I'm a patriot! Harley needs to listen up. I bought my Goldwing because for the same $25g, I can ride in more comfort, more reliability, the bike is quiet enough to hear the radio, I don't vibrate my teeth out of my head, there are no leak stains on my driveway, my wife can almost fall asleep as she rides in comfort on the back seat, I can realistically expect 200,000 or more miles out of my bike, and I grin really big when those smug Harley riders won't give me the biker salute but they have to eat my dust when I leave them behind at the red lights. Yeah, I love my Wing.

By the way, I'm in my 50's and my wife is in her 30's. I didn't marry one as young as Don did because I didn't want to have to raise another kid!

CC.  Sorry to hear that you have been taken in but the Goldwing propaganda.  Why on earth would you want a bike that wasn't loud?  Maybe you like getting hit or run off the road by car drivers who do not watch for you.  Loud pipes save lives, quiet pipe create graves.  Radios are for your house and your car they have no business on a bike.  The most important part of riding a bike is that it is just you and the road, nothing else.   I bought my Superglide brand new in 1999.  This was the first year of the Twin Cam.  I have no oil spots in my garage, and other than regular maintenance, customizing work, and repairs cause by reckless car drivers who casued me to crash because they were not paying attention when they were driving, my bike has not spent one second in the shop.  It is 100% reliable.  Further, my wife does fall alseep on the back of it (when she is not riding her own Low-Rider).  On top of all of that I have well over 100K on that bike and it is still going strong.  So tell me again...  Why did you buy a Goldwing?

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