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On Mar 20, we maintained our Neutral recommendation on Harley-Davidson Inc. (HOG - Analyst Report) based on its better performance in the fourth quarter of 2012, despite the challenges from the aging customer base and strong competition.

Why Maintained?

On Jan 29, 2013, Harley-Davidson posted a 29.2% rise in earnings per share to 31 cents in the fourth quarter of 2012 from 24 cents in the same quarter of 2011. The EPS was in line with the Zacks Consensus Estimate. Net income grew 29.3% to $70.6 million from $54.6 million in the fourth quarter of 2011.

However, consolidated revenues in the quarter inched down 0.8% to $1.17 billion in the quarter due to announced plans for lower shipments related to the implementation of seasonal surge production at York facility in the first half of 2013. Nevertheless, it was higher than the Zacks Consensus Estimate of $982 million.

Following the release of the fourth quarter 2012 results, the Zacks Consensus Estimate for 2013 declined 1.2% to $3.33 per share. Meanwhile, the Zacks Consensus Estimate was unchanged at $3.85 for 2014. Harley-Davidson currently retains a Zacks Rank #3 (Hold).

Harley-Davidson enjoys a scale advantage over its peers 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 benefits 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 - Analyst Report), Suzuki and Yamaha.

Other Stocks to Consider

Few stocks that are performing well in the industry where Harley-Davidson operates include Gentherm Incorporated (THRM - Snapshot Report) and STRATTEC Security Corporation (STRT - Snapshot Report). Both are a Zacks Rank #1 (Strong Buy) stocks.

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