Harley-Davidson Shares Upgraded on Outlook Under New CEO

Harley-Davidson shares were upgraded at BMO, which likes the motorcycle icon's outlook under new CEO Jochen Zeitz.
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Shares of Harley-Davidson  (HOG) - Get Report rose Tuesday after analysts at BMO Capital upgraded the motorcycle maker's stock to outperform from market perform while raising their price target to $33 a share from $23. 

The new target represents 27% potential upside from the stock's Monday closing price. Analyst Gerrick Johnson now has the highest price target for Harley on Wall Street. 

"We are more positive about the outlook for the company given recent management changes. [The new chief executive,] Jochen Zeitz, brings with him a high level of credibility that has been embraced by investors," Johnson wrote.

Johnson expects key metrics like used-bike prices and dealer-inventory levels to improve over the next several quarters, providing evidence of Zeitz's turnaround efforts. 

The analyst's new price target represents multiples of 15 times BMO's earnings estimate of $2.20 a share for 2021 and 12 times the firm's newly initiated 2022 estimate of $2.85 a share. 

"There remains a lot of heavy lifting for Mr. Zeitz and his team; a potentially slowing economy makes the challenges even more difficult," Johnson wrote. 

"The sport of motorcycling has been in secular decline, requiring the company to grow share, leverage the brand, and enter new markets." 

In the meantime, BMO expects Harley to withhold shipments of new motorcycles in order to improve the premium status of its brand, increase used-bike prices and shake out weak dealers.

This will cause sales to fall in the near term, the analyst says, leaving the investment community "no way to know if the plan is working until next year, after the company ships new model year 2021 motorcycles to dealers in February."

Harley-Davidson shares at last check rose 3.8% to $26.91.