Analysts Aren't Too Optimistic Following Harley-Davidson's Earnings Miss

Harley-Davidson Inc HOG dropped 5 percent Tuesday on fourth-quarter earnings misses. Earnings per share of 17 cents fell short of a 29-cent forecast, and sales of $955.633 billion underperformed $1.05 billion expectations.

Here’s what analysts have to say about it.

Looks Better Than It Is

The adjusted EPS looks bad, but Barclays said it may have been. The analysts’ estimate suggests the inclusion of tariffs would have cut Harley’s bottom-line to 11 percent.

Retail Will Get Worse

KeyBanc Capital Markets highlighted an “elusive retail bottom” as domestic trends continued to deteriorate and international trends reversed for the worst. Barclays attributed the former decline to soft used motorcycle prices, competition and demand shift to smaller bikes.

Citing little momentum and no product catalysts, KeyBanc cut its 2019 domestic retail estimate from -5.9 percent to -7.4 percent. Macro uncertainty and softening core trends inspired an international forecast reduction from 3.9 percent to -1.7 percent.

Shipments Will Slide

Additionally, the analysts modeled 2019 shipments below the low end of guidance.

“With HOG intending to continue taking units out of the domestic channel in FY19 and maintain dealer turns at current levels, we are modeling domestic shipments -8.6% (implying ~2K units taken out during FY19),” KeyBanc’s Brett Andress and Daniel Charrow wrote in a note. “Additionally, with HOG anticipating flattish international dealer inventories (against our -LSD outlook), we see international shipments coming in -2.4% (though acknowledging upside potential from 25-35 net new dealerships).”

Barclays similarly suggested shipment guidance is too aggressive.

“While management has been transparent with its strategy to drive new ridership, plans to continue combating US retail sales declines and the continued expansion of its international dealer base, Harley’s near term outlook leaves no room for error, in our view,” analyst Felicia Hendrix wrote.

Hendrix expects shares to underperform leisure peers until it demonstrates a path to consistent growth and earnings strength.

A More Appealing Angle

Tigress Financial viewed Harley's earnings with a more optimistic eye.

"Near-term headwinds should change with a new U.S.-China trade treaty and as new models start to drive sales gains," analyst Ivan Feinseth wrote in his daily newsletter.

Initiatives to entice younger consumers, new model launches and potential partnerships with e-commerce channels also inspired confidence.

"These new initiatives will add a new generation of Harley customers globally as it expands and extends its legendary lifestyle brand into new riding market segments," Feinseth wrote.

The Ratings

KeyBanc Capital Markets maintained a Sector Weight rating on the stock, and Barclays maintained an Underweight rating with a $34 price target.

Tigress sees an immediate buy opportunity in the earnings-related pullback and proposed a mid-to-high $40s price target ahead of new product launches.

Shares closed Tuesday at $34.76.

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