Harley Competitors Are Holding More Promotions

In a report published Monday, Wunderlich Securities analyst Rommel Dionisio maintained a Hold rating on Harley-Davidson, Inc (NYSE: HOG), with a price target of $63, following channel checks of more than 55 US motorcycle dealers.

The channel checks indicate that the company's key competitors have begun "aggressive promotions" to drive sell-through levels and clear dealer inventories, against the backdrop of relatively soft retail sales trends in heavyweight motorcycles so far this year.

Harley-Davidson suffered market share contraction in 4Q. Possible share recovery may be "challenged" by the promotions being undertaken by competitors as well as "increased throughput" by Polaris Industries Inc's (NYSE: PII) (rated Buy) Indian brand, Dionisio said.

In the report Wunderlich Securities noted, "In recent quarters, Honda (NYSE: HMC) has been especially aggressive with major new introductions in heavyweight touring bikes, including the Valkyrie, Gold Wing F6B, and NM4 models. In addition, this winter Honda became more aggressive with promotions as well, running 1.99% APR financing specials as well as $1,000-$1,500 incentives on key touring and cruiser bikes, even on recently introduced models."

Japan-based Yamaha seems to be taking advantage of the weaker yen, while Germany-based BMW may be taking advantage of a weaker euro to offer a wide range of promotions.

"With nearly all of Harley's production completed in the U.S., but with roughly one-third of sales coming from overseas, the recent strengthening of the U.S. dollar continues to be a meaningful headwind for the company. In addition, pressure from the recent West Coast port labor slowdown may have resulted in some elevated freight expense in 1Q, as the Far East remains a significant source of components, which are then assembled in the U.S. by Harley," Dionisio added.