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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

 

Buy japenese bikes,  I will never own a harley,   Jap bikes are more reliable and you get a hell of lot more bike for less money.  Most people buy harleys as a statues symbol.  I totally agree with the goldwing guy,  I buy a bike for comfort.

yes  hd's are assembled in the usa. a lot of parts come from different parts of the world. all mfg's do this. they hide where the wheels are made inside the bead area. have you heard of a place called china? most of the electrics are japanese. the machines from the 80-90's had a jap carb. please do not get up on the soap box and proclaim american made. a lot of it is and a lot isn't. as for the v rod porsche had little to do with the development. they only used the test track. it was good marketing hype so they ran with it. as for this article- their stock is low  becasue sales are off and expected to be off a lot more worldwide do to this recession. a lot of dealers will go belly up. the palaces that they were forced to build has mortgaged their  future to failure in a down turn

54 years young...I've owned every brand except the ural and b.s.a. worked for harley as a lead mechanic in the late 70's, I now am riding a kawasaki vn 2000(my second one) married 33 years to my high school sweety...we ride 30,000 miles plus a year, currently restoring 4 differant bikes over the winter(Usually 4-6 every winter) I know bikes!!! My question is this...Why after over 100 plus years perfecting a v-twin by h-d, can the japs come out and build better, everywhere on their v motors,put  up to 5 year factory warrantys, out perform,out last etc the old harley? don't get me wronge I still have a 02 duece  I cruise around on but  when I go long distances there no question what we're going to ride, better power, mileage, RIDE!, and for about 1/2 the cost of the hog? It really cracks mw up when you give the new hog riders the down low wave and they won't respond, unless I am on my hog, what abunch of hipocrites!! thanks for letting me vent, keep the shiny side up brad

And for the HD riders who keep saying that the Company has lost touch and should be still making-insert name here-type of motor, when exactly do you think they should have stopped trying to improve their product, with the Evo, or the Pan, or maybe even the Shovel? They, like all companies, need to grow and expand and while they made the same mistakes everyone has lately with credit, changes like the Buells, V-Rod and other bikes geared toward the younger rider as well as the Tri-Glide for the older rider is what will keep them more current in today's market. If you like the older iron, there is lot's of it out there and ways to keep it on the road. Don't knock HD for trying to keep making money and keep the brand alive...

My husband and I are in our mid 40's and I just bought him his 1st Harley, a 2001 Dyna Wide Glide. He was hooked after taking it out for a test ride and just loved the way the bike handled. We just sold our 1986 Yamaha Ventura. Yes, she was a smooth and comfortable ride, but once my husband started riding his Dyna, he soon forget about his Yamaha. I'm not saying we didn't enjoy the Yamaha and she was a good reliable bike for us, but going down the road in a rumble with our fellow bikers is a whole lot of fun. Did I mention how good my husband looks in his leathers, he's HOT. "Ride on Harley Davidson", Sorry Yamaha!

Stop being whiners, a person buys a Harley because it's what's in him/her, and loves them.  All you R.U.B.'s out there that say "I should have bought a Honda", just go buy one.  You're not worthy to be on a Harley anyway.  Finally, we can rid our lifestyle of you "wanna be's".  Once you've done some major work on your scoot yourself, (instead of taking it to the dealer), you become part of that machine.  "If I have to explain, you wouldn't understand".

Stan- You might have missed my post.  I bought a Victory because when I visited the HD dealership with cash in hand, I was basically ignored.  I would still like to have a Harley some day, (my favorite is a Heritage Softail Classic) but it will be a used machine.  I'll not support the snobs at the dealer.  And it's not because I think that the HD is the ultimate bike, or because it wll somehow make me whole.  I have just always wanted one.  That's it.  My Victory is a great bike and I get comments and "thumbs up's" just about everytime I ride.  I've been riding for 30 years and I agree with SCubabiker.  Riding a Harley doesn't make you a biker.  It's a lifestyle choice and an attitude.  Owning a Harley does make you anything but poorer and perhaps happier, if that is what you want.

Twist, no they bought Buell because it was there hope for a race bike that could compete but they've pretty much abandoneded that.

I'd rather have a sister in a whore house than a brother that rode a Honda or Yamaha!!! I don't care what anyone says, when your riding a Harley your riding heritage, tradition, and craftsmanship unlike any other. Yep, the market is down, big deal. Harley has faced adversity before and risen above it. It will rise above it again. If you produce a quality product, you can't lose. That's why the foreign market cars are killing our automakers. We can't produce quality cars. Our boys in detroit can't even come up with new, competitive designs. They have to go back and re-introduce Mustangs, Camaros, Cuda's etc. They need to go back to ground zero and re-think their direction. For all you cat's buying rice burners, your just wanna be's. Go ahead, invest in a HOG, your wife will thank you for it and you will instantly get a sense of pride that the jap stuff just can't give you.

My hubby wanted a bike.  It had been close to 15 years since he last owned one (stolen at that time).  He didn't want to look at Harley's because he thought they were too pricey.  I convinced him to look. After all you never know!  The only thing he didn't want was a crotch rocket.  Anyway, we looked and he wound up buying one.  He's the proud owner of a Dyna Superglide (think that's the right name).  We went to three dealerships and finally decided on one.  We were treated very well at all three places.  Never looked down on or talked down to.  He's now thinking of trading in for another bike.  We're not ready to do so, but just went to look and can't say enough about the sales folks.  Very helpful and informative even though we said we're not buying now.  I think sales attitude has a lot to do with your attitude when you walk into the place.

He bought the bike to use for short commutes to work, but now rides pretty much every day, year round.  Snow flurries and showers in my neck of the woods today, but he rode it to work!  Yes he's going to look at other brands, but I'm thinking that he'll wind up with another Harley. I like that it's made in the US.  Good service and good sales and decent prices.  Compare apples to apples after all!

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