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Analyst Blog

On Jul 12, we maintained our Neutral recommendation on Harley-Davidson Inc. (HOG - Analyst Report). Though we are bullish about the company’s improved performance in the first quarter of 2013 and higher shipment guidance in 2013, we remain concerned about its aging customer base and strong competition in the market.

Why the Reiteration?

On April 25, Harley-Davidson posted a 33.8% rise in earnings to 99 cents per share in the first quarter of 2013 from 74 cents in the same quarter of prior year, topping the Zacks Consensus Estimate of 97 cents.

Consolidated revenues improved 9.8% to $1.57 billion, exceeding the Zacks Consensus Estimate of $1.46 billion. The increase in sales and earnings during the quarter was attributable to higher motorcycle shipments and continued improvement in operating efficiencies.

Following the release of the first quarter results, the Zacks Consensus Estimate for 2013 decreased 0.3% to $3.31 per share. Meanwhile, the Zacks Consensus Estimate for 2014 remained constant at $3.87 per share.

Harley-Davidson enjoys a competitive advantage as it commands 50% market share in the U.S. It operates 706 independent dealers in the U.S., of which 55% exclusively market its products. Harley-Davidson has a network of 1,468 dealers across the world.

Harley-Davidson continues to benefit from the restructuring activities incorporated in 2009. In 2012, the company realized savings of $280.0 million from these restructuring activities. Upon completion of these activities in 2013, Harley-Davidson expects savings of $305.0 million in the year and annual ongoing savings of $320.0 million beginning in 2014.

However, Harley-Davidson faces challenges from its aging customer base. The young generation is more attracted toward smaller and cheaper bikes manufactured by Japanese manufacturers Honda Motor Co. (HMC), Suzuki and Yamaha.

Other Stocks to Look For

Some stocks that are performing well in the automotive industry include Visteon Corp. (VC) and WABCO Holdings Inc. (WBC). Both Visteon and WABCO retain a Zacks Rank #1 (Strong Buy).

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