Following Harley-Davidson Inc’s HOG strong first-quarter earnings, investors have become bullish on the company’s potential turnaround and seem to be under-estimating the secular challenges ahead, according to Morgan Stanley.
The Harley-Davidson Analyst: Billy Kovanis downgraded the rating for Harley-Davidson from Equal-Weight to Underweight, while raising the price target from $36 to $38.
The Harley-Davidson Thesis: Following strong first-quarter results, the stock has risen to a three-year high, sufficiently reflecting the “positive dynamics,” Kovanis said in the downgrade note.
“While investors have justifiably embraced the new message from CEO Jochen Zeitz around increasing desirability and profitability, there are now higher expectations to execute beyond the 'quick fixes' that management has successfully implemented,” he added.
It seems to be “too early for investors to extrapolate one quarter into their 10yr DCF at this stage, particularly as Q1 included one-off tailwinds,” the analyst noted.
“Overall, amidst the positive sentiment and turnaround actions implemented, we don't believe investors are focused on the potential headwinds that are around the corner, stemming from electrification, new competition, a potential 200bps impact from higher EU tariffs and an industry in secular decline,” Kovanis wrote.
HOG Price Action: Shares of Harley-Davidson had declined by 0.71% to $47.73 at the time of publication Friday morning.
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