It’s been a tough six years for Harley Davidson (NYSE: HOG)
shareholders; shares currently change hands for less than half of 2014 levels. To add insult to injury, the S&P 500 has nearly doubled over the same period.
The motorcycle manufacturer has struggled because older riders comprise most of its customer-base and there aren’t enough young people buying Harleys.
But a Harley Davidson turnaround is well underway, and it’s starting at the top.
New CEO Jochen Zeitz is the Right Man for the Job
Jochen Zeitz assumed the position of CEO at Harley Davidson back in May, and he brought hope. Justifiable hope.
This isn’t Zeitz’s first rodeo; in the early 2000’s, he executed a turnaround at Puma. Over a five-year span, he tripled the company’s sales – and share price.
Zeitz has been aggressive over the first five months of his tenure, taking steps that have a great chance of leading to increased profits for Harley Davidson.
HOG is Eliminating 30% of Its Product Line
Harley Davidson’s dealers have faced pricing pressure due to the long-term decrease in motorcycle popularity. Instead of continuing to let that happen, Zeitz decided to do something about it:
Harley is eliminating 30% of its product line, in order to focus on its best sellers. The company started to implement this strategy in Q2 and… It worked. Harley says that 2020 model year bikes are now selling at their sticker prices, and used Harley prices have also increased.
By decreasing its production, Harley enabled itself to eliminate 700 positions. That is estimated to lead to annual savings of around $100 million, a hefty sum for a company with a market cap of less than $5 billion.
The move strengthens the financial position of a company with a bit of debt on the balance sheet, although Harley was never in any near-term danger of financial ruin.
Wedbush Loves Harley
Last week, Wedbush added Harley to its best ideas list. HOG shares jumped more than 5% on the news.
Wedbush analyst James Hardiman added his voice to the chorus of analysts lauding the Zeitz hire, but also made his case for a strong first half of 2021.
You see, Harley’s new models typically come out in August or September. But because of the pandemic, the 2021 models won’t be released until early next year. The delay will dent Harley’s Q3 and Q4 2020 sales, but provide a benefit in 2021.
On top of that, Hardiman alluded to “the early-2020 quarantines and subsequently increased interest in outdoor products” giving way to a 2021 increase in motorcycle sales.
This wouldn’t be the only industry where that is projected to happen; the RV Industry Association is projecting a record number of shipments in 2021. People are tired of being stuck at home, and the open road beckons them.
Hardiman put a $36 price target on HOG, which is a lot higher than its current share price.
Price Action Looks Good
Yesterday, the market put in a reversal after a couple of down days. Harley also put in a reversal, but unlike the indices, closed up for the day.
The price action looks good as:
- The reversal happened right at the 50-day moving average.
- The 50-day moving average crossed over the 200-day moving average just over a month ago.
- Shares remain well below overbought territory.
Harley faces resistance in the $29-30 range, where it’s been turned back a few times over the past three months. But you have a nice entry point right now, and can look to get in ahead of a potential breakout.
The Final Word
I’m not saying that it’s going to be an open highway for Harley from here on out; there will be more bumps in the road.
Harley’s demographics aren’t about to get more favorable, after all.
But I’m a big believer in Zeitz and his plans in the long-term. And in the intermediate-term, Harley can quickly bounce back from a rough 2020. Bottom line, you should consider picking up Harley shares before it really turns the corner.
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