UBS Upgrades Harley-Davidson, Notes 'Repo Value'

In a report published Thursday, UBS analyst Robin M. Farley upgraded the rating on

from Neutral to Buy, while raising the price target from $60 to $63. Harley-Davidson's shares have declined by 18 percent over the past 12 months, underperforming the broader market. The company now appears to be "worth revisiting" in view of its new balance sheet strategy that followed changes at the board and CEO level. Harley-Davidson's board has authorized another 20 million shares to be repurchased in addition to the existing 15.9 million authorized as of June 16. "The total of $1.5B in share repo is roughly $900M incremental to our previous 2015 est of $632M," analyst Robin M. Farley said. The EPS estimate for 2016 has been raised from $4.60 to $ 4.81, to reflect the accretion from share buybacks. In the report UBS noted, "This is primarily a call about valuation and balance sheet strategy, not a change in revenue or profit outlook. With HOG down 18% in LTM, Harley's challenged revenue outlook may be factored into the stock." Farley commented that US retail sales for April are likely to have been flat and May-June should have easier comps y/y. There is risk to the company's top line and its surprising that the company didn't reset shipment expectations before a major share repurchase. "We est shipment growth +1.3% vs management guidance +2-4% for '15, but stock's YTD decline may already reflect that expectations are below that guidance," the report added.