PMitchell
Jan 25th, 2008, 2:53 pm
A Wipeout for HOG Lovers? Harley Shares at Crossroad
Speaking of value stocks, Harley-Davidson has been roadkill.
Its shares have fallen 46% since peaking in November 2006.
The credit crunch is part of the problem. Harley has relied on zero-down and low-interest financing -- sometimes to borrowers with shaky credit -- to boost flagging sales. Now delinquencies are rising. Of its third-quarter loans that Harley's finance unit packaged into asset-backed securities, 3.55% were delinquent four months later, up from less than 3% a year earlier.
Consumer-spending is another worry. People don't buy Hogs to tote groceries but for the pure sport of setting off car alarms with their teeth-rattling engines. People buy fewer motorcycles, when times are tight. Motorcycle sales sank 20% in December from the prior year, says the Motorcycle Industry Council.
Bulls argue that nouveau riche in developing markets still want to own Harley, an iconic brand. Harley's third-quarter retail sales rose 9% abroad, while U.S. sales fell 2.5%. But if global growth is slowing, the overseas accelerator could notch down. Besides, the U.S. is still 75% of Harley's market.
Harley shares trade at about 10 times 2008 estimated earnings, a discount to the S&P 500. That could make them a value stock worth watching. But if Harley cuts its 2008 forecast when it reports earnings today, it could be a reminder this credit crisis isn't over.
--Mark Gongloff
Speaking of value stocks, Harley-Davidson has been roadkill.
Its shares have fallen 46% since peaking in November 2006.
The credit crunch is part of the problem. Harley has relied on zero-down and low-interest financing -- sometimes to borrowers with shaky credit -- to boost flagging sales. Now delinquencies are rising. Of its third-quarter loans that Harley's finance unit packaged into asset-backed securities, 3.55% were delinquent four months later, up from less than 3% a year earlier.
Consumer-spending is another worry. People don't buy Hogs to tote groceries but for the pure sport of setting off car alarms with their teeth-rattling engines. People buy fewer motorcycles, when times are tight. Motorcycle sales sank 20% in December from the prior year, says the Motorcycle Industry Council.
Bulls argue that nouveau riche in developing markets still want to own Harley, an iconic brand. Harley's third-quarter retail sales rose 9% abroad, while U.S. sales fell 2.5%. But if global growth is slowing, the overseas accelerator could notch down. Besides, the U.S. is still 75% of Harley's market.
Harley shares trade at about 10 times 2008 estimated earnings, a discount to the S&P 500. That could make them a value stock worth watching. But if Harley cuts its 2008 forecast when it reports earnings today, it could be a reminder this credit crisis isn't over.
--Mark Gongloff