HOG's A Hog: Why Harley-Davidson Is An Uncertain Investment

• Harley-Davidson Inc HOG shares have been treading a downward path after touching a high of over $70 in December 2014.
• Wedbush’s James Hardiman maintained a Neutral rating on the company with a price target of $57.
• Although the company’s stock is cheap, Hardiman believes that the absence of any reliable catalyst for the retail environment is an area of concern.

Analyst James Hardiman mentioned that Harley-Davidson retailers have witnessed a nominal improvement through August, with 3Q retail up 3 percent as compared to the ~2 percent organic growth during 2Q. The trend is, however, “a step down from what management noted was near-double-digit growth in June,” Hardiman added.

Among the MY16 new bikes, the company’s dealers appear to be most excited about the Road Glide Ultra as well as the additions and upgrades to the Softail line. Hardiman added, however, that the customer response is important, after the bikes begin being purchased in September and beyond.

Hardiman expressed concern regarding whether the retail trends in 2H would be sufficient for the company to achieve its shipment target for this year. In the report Wedbush noted, “…the company would need to deliver 6.5%-7.5% retail growth in the back half of the year just to achieve the lower end of the guidance.”

“Such an accomplishment becomes increasingly more difficult with each passing month that falls short of this range (as was the case in both July and August),” the report added.

Hardiman believes the Street is underappreciating the benefit that Harley-Davidson derives from “a more normalized wholesale/retail relationship” versus the inventory drawdown in 3Q last year.

The EPS estimates for 2015 and 2016 have been reduced from $4.00 to $3.95 and from $4.73 to $4.68, respectively.