Wedbush Securities said its channel checks point to continued market share expansion for Harley-Davidson, Inc. (NYSE: HOG). The brokerage maintained its outperform rating on shares of Harley-Davidson with a price target of $48.
Based on our feedback from channel checks of over 60 motorcycle dealers in the U.S., for Harley-Davidson as well as its key Japanese competitors (Honda, Yamaha, Kawasaki, and Suzuki), dealers in all regional geographies noted continued improvement in overall motorcycle industry sales trends, citing improving economic trends as well as increased availability of consumer financing as key drivers for the rising optimism, said Rommel Dionisio, an analyst at Wedbush Securities.
Dionisio said mid-to-high single-digit sales improvement versus 2010 levels seemed to be the consensus view among the dealers he contacted. For the Japanese brands, dealer inventories appeared much leaner than a year ago, resulting in meaningfully lower promotional rebates and price cuts compared to prior quarters, even on 2009 and 2010 model-year leftovers.
Dionisio said several dealers for competitive brands noted increased availability of financing as an additional contributing factor for the strengthening industry sales. For Harley-Davidson, which has deliberately turned away more subprime prospective borrowers over the past 2 years to improve the credit quality of its loan portfolio, dealers noted such subprime consumers are increasingly managing to find alternate sources of financing from banks or other lenders.
For the big four Japanese brands, all of whom produce their heavyweight motorcycles in Japan, U.S. based dealers increasingly noted (even compared with Dionisio's early April survey) shipment delays for 2011 model-year motorcycles from Japan as a result of the tsunami's impact.
Dionisio said several Yamaha dealers even noted the timing of certain 2012 new product launches are now being pushed back 3 to 4 months. Finally, most of the competitive dealers complained about vague and unclear responses from their Japanese suppliers as to when normal shipment patterns might resume.
Given an encouraging global recovery in heavyweight motorcycles, Harley-Davidson's own market share gains, and increased profitability and lower credit risk in the financing arm, we believe shares of Harley-Davidson should trade relatively in line to the peer-group average 2012 price-to-earnings ratio of 18 times, which generates our 12-month price target of $48, said Dionisio.
Harley-Davidson stock closed Friday's regular trading down 1.61 percent at $36.56 on the NYSE.