Cora1

Company Death Watch: Harley-Davidson

They stopped buying back in Q3!


On Jan 25 07:49 PM RADO wrote:

> I have to say, HOG management surprised me on Friday... I thought
> they were more rational. It's hard to understand why they continued
> to waste cash on share bay-backs and dividends and at the same time
> straggle to refinance debt. It just doesn't compute... buying shares
> at $39 using hard-borrowed, short-term loans - what was their investment
> thesis, I wonder? I hate it when managers start playing "Warren Buffet"
> instead of managing their operations. Avoiding dividend cut is another
> irrational decision...seems like "image" for management is more important
> than cash.
>
> On the other hand, I am less pessimistic for the long term. 80% of
> receivables are prime; 30-day delinquencies are 6.29% for 2008, about
> the same as in 2007 (6.15%). Defaults are 2.3%. If management is
> not hiding anything, this is much higher quality of receivables than
> market average. Also, ABSs have short maturities and a prepayment
> option; too bad management did not bother to disclose how much of
> the portfolio will convert into cash this way in 2009.
>
> I also see as positive development the replacement of the HDFS manager.
> The guy was simply unprofessional - any more or less experienced
> banker would know that financing 5-7 year loans with 180-days notes
> is insanity. I guess he had no clue about some basic banking concepts
> like portfolio duration and gap risk. Maybe the new CFO heard of
> them? We'll see soon.
>
> My judgment is - there will be no bankruptcy (company core economics
> is strong, and so it's long-term position), but unless the management
> gets realistic and rational ASAP, we'll see a lot of shareholder
> equity go down the toilet, along with the share price.

Company Death Watch: Harley-Davidson

Interesting contribution, Ryan. Your disclosure: Short HOG; Your intention: Closing short in HOG?

Harley Will Sputter Into 2009

Company is undeniably facing a perfect storm, but stock appears heavily shorted, negative news is out, downward revisions of unrealistically high analyst earnings expectations done by Monday/Tuesday; with company guiding Q1 deliveries up and Q2-Q4 implicitely down some 19% I tend to see more risk being short this stock than long, especially as the upcoming stimulus package may contain some positive news with respect to consumer financing (catalyst for buying/short-covering)... In terms of valuation: the stock is cheap (2009 EPS should come in between USD1 and 1,5 pre-charges. Comparing HOG to GM (1st comment above) is not valid with respect to balance sheet, margins and thus ability to cope with the current challenges.

Disclosure: bought at $10.3 on Friday