It's the Fourth of July! And almost all of the holiday fun-seeking Americans are out on the road to enjoy the festivities of the highly valued Independence Day. Practically every major road and highways have been teeming with all types of vehicles for them to celebrate this revered and most popular national holiday.
The usual roar of motorbikes, for one, led by the No. 1 of them all, the Harley-Davidson power motorcycles, continue to lead all kinds of parades or road activities in most towns and cities. But despite Harley's globally popular Hog and its other motorbikes, shares of this maker of major heavyweight motorcycles haven't been leading the parade on Wall Street, where the stock market has been operating on all cylinders, with the Dow Jones industrial average and S&P 500-stock index hitting multiple all-time record highs this year.
Shares of Harley have slumped to $68.75 a share on July 2, 2014, down from $73.23 on April 30, 2014, in part due to dire forecasts of sales prospects ahead. The drop in Harley-Davidson's stock price has surprised investors because the stock market has been on a tear. The motorcycle leader's stock had been expected to join the market's big rally this year. But the one big reason behind the stock's retreat: Worry about a softening in motorcycle sales worldwide.
"We now see a somewhat heightened level of risk in the near term, given recent indications of sluggish year-to-date motorcycle industry retail trends that appear essentially flat," warns Scott Hamann, analyst at KeyBanc in a note to clients. He has downgraded Harley-Davidson to a hold from a buy, and removed his price target of $80 a share.
One major source of concern is the continuing weakness in the European market. "Near-term results could be weighed down by economic weakness in Europe," says Efraim Levy, analyst at S&P Capital IQ, who recently reiterated his recommendation of a "Hold" on Harley-Davidson's stock, even as he continues to hold a positive outlook for long-term sales growth. In fact, Levy expects revenues rise this year by 12% and by 8.5% in 2015. "We have a positive view of Harley-Davidson's cost-cutting efforts," adds Levy, and the company's solid balance sheet.
Still he and other analysts aren't inclined to minimize the potential risks involved in the sluggish European market and how that could hurt motorcycle sales should the situation dampen the global economic recovery. Expanding its operations internationally is one of the company's major objectives. It expects to open 100 to 150 new dealerships from 2009 through the end of this year. Through the end of December 2013, Harley-Davidson has added 118 new international dealers.
Harley Davidson (Photo credit: racin jason)
The company may have to re-study and revise the timing and schedule in its international expansion plans in light of the weak forecasts for sales in Europe.
Although "we feel the stock has worthwhile total return potential out to 2017-2019," says Alan G. House of investment research firm Value Line, "conservative accounts should note, however, that the company is susceptible to economic downturns, as is evidenced by its subpar Earnings Predictability score (in Value Line's ranking system)." Value Line ranks Harley-Davidson only No. 3 in its Timeliness and Safety metrics.
In the meantime, however, the analyst expects Harley-Davidson's profitablity will continue. He sees the company earning $3.90 a share in 2014 on projected revenues of $6.5 billion, and $4.50 a share in 2015 on estimated sales of $7 billion. In 2013, Harley-Davidson earned $3.28 a share on revenues of $5.8 billion.
The company has about 30 models of Harley-Davidson heavyweight motorcycles, with U.S. manufacturer's suggested prices ranging from $249,849 in 2012 and $235,188 in 2011 — but still below the high of $303,479 in 2008. The company manufacturers five families of Harley-Davidson brand motorcyclces: Sportster. Dyuna, Softtail, Touring, and VRSC.
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