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Harley-Davidson Revs Up on Analysts' Upgrades, Price Hikes

Harley-Davidson 'is the most valuable motorcycle brand on the planet,' a Baird analyst says.
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Harley-Davidson  (HOG)  shifted into high gear Wednesday as a Baird analyst upgraded the iconic motorcycle maker to outperform for the first time since 2016.

Shares of the Milwaukee company were climbing 7.3% to $40.25 at last check.

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"Harley-Davidson is the most valuable motorcycle brand on the planet," Baird analyst Craig Kennison said in a research note. "After a tough recession, management restructured operations, slashed dealer inventory, rethought product development, invested internationally, and fortified the balance sheet."

Kennison, who previously had a neutral rating on the stock, also raised his price target to a Wall Street high of $45 from $38. He noted that it was the first time Baird had an outperform rating on Harley-Davidson since 2016.

Kennison cited several factors for his upgrade, including new leadership "with a fresh vision and proven record;" a plan to drive scarcity and desirability back into the brand, and the formal acknowledgement of the need for "more credible expectations."

"We believe now is the right time to get behind the iconic motorcycle brand,"  Kennison said. "Our dealer checks suggest Harley-Davidson could post retail growth for the first quarter since 2016 despite frustrating stock-outs."

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March, he added, "is the most important month and offers an easy comparison against the early pandemic outbreak."

"Meanwhile, 89% of dealers report that inventory is 'too low' following an aggressive de-stocking process in 2020 and shipment delays in early 2021," Kennison said. Dealer sentiment based on current conditions remains depressed (29 out of 100), but the 3-5 year outlook has brightened."

Dealers have vented frustration over serious shipping delays that "have some dreams unfulfilled," but the analyst said that under new leadership, "investors are hopeful for better execution."

"But Harley-Davidson is not the only OEM (Original Equipment Manufacturer) facing disruptions in the pandemic aftermath," Kennison said, "and we expect investors to look past any Q1 shortfall (or cost overruns) to the extent improving demand reveals itself -- especially with the growing need for more inventory."

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Meanwhile, Wedbush’s James Hardiman raised his share price target to $43 from $42, Bloomberg reported, saying that "while there are a great many moving pieces to first quarter trends (new models, weather, supply chain issues, lapping lock-downs, etc.) our biggest takeaway is what appears to be robust demand."

He said his above-consensus 2021 and 2022 estimates are beatable as long as dealers can eventually get sufficient bikes in stock to meet demand.

The company reported a fourth-quarter loss in February, while unveiling a new five-year turnaround plan.

Harley-Davidson is scheduled to report first-quarter results on April 20.