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As a luxury item, investors fear Harley Davidson (HOG) motorcycle sales will suffer as the U.S. economy falters. Shares are down from $75.50 last November to Friday's $46, and the immediate future isn't glowing. Harley announced 4-6% lower earnings-per-share of $3.69, down from an earlier projection of $3.77 for 2007. It also expects lower operating margins. Enjoying the negative sentiment, bulls are buying up Harley shares for an expected turnaround by 2009-2010. The stock is oversold, they say, and Harley's powerful brand name recognition will bring it back. Barron's notes Fewer baby boomer buyers -- the traditional Harley customer -- are being offset by new target groups like women and minorities. Harley's still generating lots of cash, using some of it for share buybacks ($1B worth in 2007.) The company is also limiting production and inventory at dealerships to protect the brand's value. Overseas sales, $1.2B last year, are already 20% of the firm's revenues, and its potential in Asia and Europe is practically untapped. This may help offset a U.S. slowdown. Harley's got a strong balance sheet, with a good equity-to-debt ratio, and bulls say its 12x P/E ratio is lower than the average S&P stock and other recognized brands. Barron's thinks the stock deserves a 17x P/E and could reach $60-$70 again, but only if investors are patient.

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Source: Take Harley for the Long Ride - Barron's