For a while, it was starting to look like Harley-Davidson (NYSE:HOG) had terminally thrown a rod. With interest in the company's line of motorcycles dwindling, things were looking disastrous for a while there. However, some new recent gains, and some new analyst affection for the company, sent it up 4.3% in recent trading. Better yet, as of this writing, it's managed to not only hold those gains but also add a few more onto the fire.
Exciting and Unexpected Boosts
Potentially the biggest boost to Harley's fortunes was its Monday earnings report, which noted not only better than expected profit for the quarter, but also prompted the company to offer a better than expected glimpse into the full year. The company shifted its focus to bigger touring bikes, which sold wonderfully and drove increased demand. Harley's newly-minted focus on big bikes played well with its new target market: older and wealthier consumers in Europe and the United States.
Such moves were part of earlier-established turnaround plans, which looked to produce earnings growth in the low double-digit range through the next four years. Indeed, retail sales at its various North American dealerships have jumped impressively, up 30% at last report. This was hurt somewhat by reports of losses at European retail, with sales down 36% therein. Additionally, reports have emerged that Harley may be facing some tariff issues in Europe in the near term, with an import tariff of 56% potentially levied on its products and its prospects of functioning as a competitive brand in Europe at risk.
Buy In, Call the Analysts
The analyst picture, meanwhile—as our latest research notes—is taking the potential damage to the European market in stride. The company currently has a consensus rating of “buy” on it, and that “buy” has been part of the equation for the last six months, roughly.
A year ago, analyst consensus was split evenly between “buy” and “hold”, with seven analysts chipping in on each side. Six months ago, that shifted slightly bearish, coming in at eight “buy” and nine “hold”. However, that bearish state didn't last long, as by a month ago, it had shifted clearly bullish at eight “buy” and six “hold”. That brings us to today, where analysts are even more bullish at 10 “buy” and six “hold.”
Price targets, meanwhile, run a broad gamut from a low of $20 to a high of $55. The average, however, is closer to the high at $39.29. Indeed, the lower price targets appear to be stale as well, as four analysts have raised their price targets in the last three months. Indeed, Bank of America recently initiated coverage of the stock with a “buy” and a pool-high price target of $55, the exact same stance taken by DA Davidson almost a week prior. Northcoast Research, just six days ago, upgraded from “neutral” to “buy” with a $49 price target.
Roaring Back, but Rough Roads Ahead
The short-term looks terrific for Harley, as its turnaround plan seems to be taking effect. By focusing on the older and wealthier market class, it's also taking advantage of the likely retired status of said older and wealthier. These are also folks with time on their hands and memories of the “outlaw” culture of motorcycles. It's a safe bet most of them remember “Easy Rider” from its theatrical debut back in 1969.
Throw in the fact that Harley has also launched a “certified pre-owned” program—which ensures that pre-owned Harleys are ready to go back out on the road via completion of a 110-point quality inspection—and that should help open up the field of Harley users all the more.
That's not to say everything's going perfectly for Harley; that tariff program represents a serious potential problem for the company. It was already hit hard by 25% duties on its bikes back in 2018, back when the Trump Administration was adding tariffs to imported steel and aluminum. While such tariffs may not completely shutter Harley's ability to compete in the European market, it's likely to do some damage at a time when Harley can ill afford losses in its customer base. This is especially true with Harley about to bring out a new model, the Pan American, which is projected to be quite popular in Europe, assuming it can be found at all.
Still, in the short term, Harley is looking like a great comeback investment. It's got a solid plan going forward, and as long as it can execute that plan, it might manage to push itself to prominence again. However, there are plenty of potential failure points in this plan, so those who do invest in Harley's comeback trail will want to watch out for the potholes and speed bumps found therein.
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