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Harley-Davidson, Inc. (HOG)

After 28 years riding motorcycles I think I know a thing or two about the brand.   In fact, some of my best childhood memories revolved around motorcycles and Harley was the brand that was ingrained in those memories.

Harley created a lifestyle and in my mind, they were the original social network.  Harley owners and other bikers shared a common thread that transcended culture, social status, gender and ethnicity.   Over the past two decades, Harley has expanded its appeal beyond the middle class biker circles that made it famous.  Yuppies and younger, hipper, trendier buyers have stepped up and put a Harley in their garage.  If you look at the prices of their bikes and accessories, it’s a wonder that the middle class could ever afford one.  Many of their showrooms rival some of the most expensive automotive brands in the world in their layout, décor and technology.

But even with a favorable cultural shift, the past couple years have been a bit rough for the company.  Just recently they made cuts to their hourly workforce and shutdown one of their plants in Wauwatosa WI.  Earlier this month, after 50 years as head of styling, Willie G. Davidson, who is also the grandson of founder of William A Davidson, stepped down.

For a diehard Harley fan and owner like me, one has to wonder what the effect will be on the Harley lineup with Willie G. gone.  I think that they will not only continue to produce quality and consistency in their machines, but perhaps now will begin to explore some unique designs that are still true Harleys at heart.

Fads come and go, but Harley remains tried and true to its roots in many ways.  You may have a chopper, bobber or custom bike, but for most of us who ride, especially long distances; there is nothing like a Harley. I believe their international story is one to watch as is the fact that the “chopper” fads are fading, steering more customers to Harley’s new, aggressive designs. 

Company Description & Earnings Developments
Harley-Davidson manufactures and sells motorcycles, parts, clothing and accessories around the world.  While that majority of their customers reside in the U.S, international retail sales have been growing as a percent of total sales. Harley estimates that by 2014 over 40% of retail sales will occur outside the U.S.

The company sold more units in 2011 than in 2010, but is still 33% off of their production highs in 2006.

The Milwaukee-based heavyweight motorcycle manufacturer saw third-quarter (2011) net income rise 95.9% to $183.6 million, or 78 cents per share, compared with $93.7 million, or 40 cents per share for the same period last year.

Financial Profile
HOG is a mid-cap (11.48 billion) company that is trading at about 18 times forward (expectations for next quarter) earnings; HOG became a Zacks Rank 1 strong buy on March 27th

Harley’s earnings increased from $0.62 in FY2010 to $2.55 in FY2011 (diluted) and they are expected to earn $2.75 in FY2012 according to the Zacks Consensus Estimate. 

Moving Forward
Harley has surprised analysts to the upside 3 quarters in a row with a miss back in March of 20111 at an average of almost +6.61%.

Of the 15 analysts who cover HOG, the consensus is for the company to grow earnings by 18% in the current year (FY2012) and roughly 21% in FY2013. 

In terms of the magnitude of analyst estimate trends, we are seeing consensus estimates higher than they were 90 days ago for the current quarter and for FY2013; next quarter and current year estimates are lower than they were 90 days ago.  These results include several analysts (4) moving their estimates higher in the past 30 days. 

Next quarter's average analyst EPS estimate is for 71 cents, according to the Zacks Consensus. HOG will report results on April 17th.

Market Performance & Technicals
Harley, surprisingly has been in a bullish trend since November making higher highs and higher lows.  The stock crossed above its major moving averages in early January and has since rallied 38%, hitting a new 52 week high of almost $51.

Look for initial support to come at the $47.25 level.  Below that the 50 and 200 day moving averages of $46.43 and $40.35 will be key support levels.

HOG has exceeded the S&P 500’s performance in the past year by 12.5% and outpaced it by over 14.45% in the past 3 months alone!  The stock remains in a bullish trend and has maintained its momentum in the past month, leading the index by about 3.5%.   

Performance tends to be more volatile, but correlated to the markets being that Harley has a Beta greater than 2.

Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.

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