Harley-Davidson Shares Decline as Baird Downgrades Stock to Neutral

Baird analysts have downgraded Harley-Davidson shares from Outperform to Neutral, following dealer checks that revealed troubling trends for the third quarter, including weak retail sales, high inventory levels, and negative sentiments among dealers and customers. The firm also lowered its price target for the stock from $44 to $40.

In premarket trading, the motorcycle manufacturer’s shares dropped approximately 4%. Reports from Baird indicate that dealers experienced significant declines in retail, with collective sales dropping by double-digit percentages. This underperformance suggests a likely mid-single-digit percentage decline in future reports.

Several factors are contributing to this downturn, including economic concerns, the effects of the election cycle, and reduced showroom traffic as consumers increasingly shift to online purchasing. High-interest rates are also a significant deterrent, with one dealer noting the hesitance of customers to finance expensive purchases at nearly 10% interest.

Additionally, dealers expressed worries about inventory levels, with most indicating that stock is excessively high. This has led to substantial discounting and a downward pressure on pricing. The used motorcycle market has also felt the impact, with many bikes being sold below the manufacturer’s suggested retail price.

Baird analysts commented that powersports dealers still have considerable work ahead to balance their inventory. As a result, they anticipate risks to the 2024 shipment guidance and have revised their shipment forecasts for 2024 and 2025 downward.

Dealer sentiment has hit record lows, reflected in scores of just 2 out of 100 for current conditions and 9 out of 100 for the 3-5 year outlook. This discontent was notably highlighted in a recent report, where dealers expressed frustration with company policies that they believe may lead to dealership closures and financial strain similar to that seen during the 2008-09 recession.

Looking ahead, Baird’s analysis suggests that there are significant downside risks for Harley-Davidson’s future shipments and financial services, driven by weak demand, excessive inventory, and negative perceptions among dealers and stakeholders. While analysts acknowledge the brand’s value, they believe it may be prudent to refrain from investment until pressure alleviates from riders, dealers, and shareholders.