Surprisingly strong earnings at Harley-Davidson helped push the stock higher last month. Now an analyst at KeyBanc sees downside for the motorcycle manufacturer.
The back story. Harley-Davidson stock (ticker: HOG) got a much-needed boost in October as the favorable result offset news that the company halted production of its much-anticipated electric motorcycle.
By the close of trading last week, the shares were up 15% in 2019 and 0.3% in the trailing one-year period.
What’s new. KeyBanc Capital Markets analyst Brett Andress says Polaris -owned Indian Motorcycle’s new Challenger bike is “aimed squarely” at Harley’s popular Road Glide model.
“We view this important (and profitable) niche as ripe for a formidable domestic alternative,” Andress wrote.
Harley-Davidson sold about 24,500 Road Glide bikes in the U.S. in the 12 months through August. That amounts to 15% to 20% of its total U.S. retail sales volume.
“While some argue Road Gliders are among the most loyal HOG riders, we argue part of this is due to its domestic equity, where there has been no formidable alternative of late, leading us to believe that HOG has a lot to lose here,” he wrote.
Harley declined to comment.
Harley stock was down 1.6% to $38.71 in early trading Monday. The Dow Jones Industrial Average was 0.5% higher.
Looking ahead. Andress thinks Indian’s Challenger can contribute about $90 million in sales to the company and about 35 cents a share to Polaris’s earnings over the next two years, while pressuring Harley’s earnings by about 25 cents a share.
He said that while Harley’s efforts to get Americans riding motorcycles again can benefit the company over the long term, the new competition, signs that sales may have been weaker in October, and a lack of factors that could lift the stock in the near term led him to downgrade the shares. Andress now rates Harley at Underweight, rather than Sector Weight, with a $33 price target.