Analyst Names Harley-Davidson 'Top Leisure Pick' For 2022

Harley-Davidson Inc (NYSE: HOG) shares have lagged once again in 2021, but one analyst said Thursday that Harley is a top leisure stock pick heading into 2022.

The Analyst: Bank of America analyst Robert Ohmes reiterated his Buy rating and $70 price target for Harley.

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The Thesis: Ohmes recently met with Harley CFO Gina Goetter and said there are several reasons why he is bullish on the stock, starting with its core motorcycle business.

“HOG is very pleased with the motorcycle divisions margin performance, given already overcoming 500bp of headwinds from raw material & supplier price increases and logistics in 2Q & 3Q that are expected to continue in 4Q21 (as supplier cost pass-thru in 2022 should be higher than 2021), with higher New Model pricing likely to be seen in January and a mix of higher margin new model launches as HOG has eliminated new development of low margin motorcycles,” Ohmes said.

Unfortunately, Harley does not expect motorcycle gross margins to get back to 35% in the long term given a likely mix shift toward lower-margin international sales.

In addition to motorcycle sales, Ohmes said Harley’s financial services division has a significant opportunity to finance more used motorcycles given penetration of the used market is only about 25% today.

Despite the lackluster returns for investors, Ohmes said Harley’s 2021 product strategy is going according to plan. In fact, the new Sportster S was recently voted Best Cruiser of 2021 by Motorcycle.com. In addition, Ohmes said the Pan America 1250 is gaining market share in the Adventure Touring category for Harley.

Finally, Ohmes said Harley has several tailwinds heading into 2022, including higher used motorcycle prices, a strong balance sheet for potential buybacks and a large opportunity in China.

Benzinga’s Take: It appears Harley is well-positioned heading into 2022, but the company is facing some longer-term headwinds that may be difficult to overcome.

In the past 10 years, Harley’s trailing 12-month revenue peaked way back in 2014 and was trending lower even before the pandemic hit in 2020.

Photo by Austin Neill on Unsplash