By Sam Boughedda
Jefferies analysts started Harley-Davidson (NYSE:HOG) at Underperform with a $39 per share price target in a note Tuesday.
The analyst commented that Harley-Davidson's shares are "over-revved" for the current gear.
"Shares are up nearly ~40% since Oct. 2022 (vs. the S&P 500 +8%) as retail inflected positively in Aug. (continuing through Oct.) and margin improvement is seen as further evidence of the turnaround's traction. Based on macro headwinds and dealer commentary, however, we expect demand signals to invert negatively into 2023. We note shares short are near all-time lows," wrote the analysts.
They also believe the company's new management and hardwire strategy have "breathed new life" into the HOG turnaround thesis.
"Simply put, this isn't 2018's Harley-Davidson. New mgmt has cut costs & rationalized SKUs/markets, sending adj. HDMC OM% ~5pts higher since '19. Stronger per-unit profit (~2x in '22E vs '19) is a milestone of Hardwire (multi-year plan to deliver profitable growth). HOG's impressive share price performance reflects investor gravitation toward stories with idiosyncratic catalysts amid broadly bearish sentiment in the space," the analysts explained.
However, they went on to state that they see outsized execution risk and the company's projections look optimistic.
"Efforts to enter new, higher-growth segments put HOG in unfamiliar territory, where success hinges on completely different factors. Opportunity in new segments (e.g. e-motorcycles) will also face intense competition, likely pressuring ultimate market share and pricing power. Industry choppiness on unfavorable macro makes this even more challenging," continued the analysts. "HOG projects ridership growth to accelerate in 2022-30 vs the 2012-21 trend (to >700K gross adds/year vs prior ~600K). Of Hardwire targets, we are most cautious on the outlook for LiveWire."
Harley-Davidson shares are down 1% so far on Tuesday.