Harley Davidson's Registration Growth May Have Stalled; Goldman Downgrades Stock

Goldman Sachs’ Patrick Archambault expects Harley-Davidson Inc (NYSE: HOG) to see a decline in U.S. registrations during 2Q16, which would mark the seventh successive quarter of year-on-year sales declines.

Archambault downgraded the rating on the company from Buy to Neutral, while lowering the price target from $55 to $50.

Ongoing Recovery

The analyst mentioned that despite a recovery in the heavy weight motorcycle market from the trough seen in 1Q11, sales in this segment are almost 39 percent below peak levels.

While this suggests a runway for growth, Archambault pointed out, “Add in a recovery in disposable income for core buyers, and the stage seemed set for strong volume growth in the US.”

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Archambault also expressed optimism regarding the untapped potential of the emerging markets, with India, China and Brazil accounting for only 60 dealerships, but robust cost leverage potential, given the meaningful footprint restructuring undertaken over the years.

Challenges

However, due to the strengthening of the dollar, Harley Davidson faced: “1) transactional headwinds equivalent to ~$50 million annually, and 2) competitive pressure from its Japanese competitors who leveraged the weaker Yen to offer bigger discounts driving Harley share down by 340bp last year,” the analyst said.

Archambault stated deal checks imply foot traffic has been mixed, rather than weak, during the first two months of 2Q.

The analyst also expressed concerns regarding long-term brand relevance and demographic headwinds.