“We are cautiously optimistic for steady powersports market growth in 2020 (subject to weather) given recent retail momentum, clean channel positioning, and constructive consumer fundamentals.”
That’s how Wells Fargo Securities describes its 2020 outlook for the industry, according to a research note provided to Powersports Business by Wells Fargo Securities analyst Tim Conder. The report is based on Wells Fargo Securities market observations and conversations with Wells Fargo Commercial Distribution Finance (CDF) colleagues who oversee wholesale (floorplan) lending in the core Powersports, Marine, and RV sectors.
Here’s a look by segment at Conder’s 2020 prospectus:
“Motorcycles: We expect units –LSD% against difficult Ryker and Off-Road comps. Heavyweight declines will likely be less bad (more in line with the market), but we do not see any catalysts that could reverse the segment’s structural headwinds.
“ATV: We expect units flattish vs. 2019 +LSD% comp.
“SxS: We expect units +LSD% with Polaris holding share at the top with Can-Am and Honda gaining share.”
Conder also reports that core powersports brings a “favorable fundamental setup into 2020, expecting steady +LSD% industry growth led by ORVs. We remain selective on Powersports equities favoring Overweight PII ($93.86, 2020 operating leverage story) and DOO.CN (C$74.64, market share growth opportunity). We remain cautious on Equal Weight HOG ($34.57) given structural industry headwinds.
“We believe collective U.S. core powersports unit retail likely grew LSD%-MSD% ex-snowmobiles in Jan. continuing the positive trends seen exiting 2019. We do not have a good read on early-Feb retail or recent Canadian trends. Collective channel inventories remain in 5-year best position with channel aging further improving to <10% as the channel leans out – Jan. liquidation $ +LDD% vs. wholesale $ +HSD%. Note Jan. is a seasonally slow month. Portfolio credit quality remains stable with delinquencies/write-offs all strong. We believe promotions remain seasonally normal with channel inventories healthy. As with Marine and RV, we will continue to monitor the potential for ‘political pause’ around the uncertain 2020 presidential election, but believe the risk/exposure is more limited in the core powersports space. We note economic indicators more highly correlated to collective Powersports are slightly positive.
“Jan. Retail: Motorcycles: Industry unit retail likely positive vs. -0.1% comp, but with varying performance by sub-segment. On-Highway retail appears flat vs. -0.9% comp with Cruisers +HSD% (very easy comp) and Sport Bikes +MSD%, but Touring still lagging –HSD%. Off-Road and Dirt both continue to outperform at +DD%.
“ATV: Unit retail +MSD% vs. moderate +3.5% comp. 2019 was the first year of ATV market growth since 2014.
“SxS: We believe units continue to trend in the +LSD-MSD% range with positive momentum from OEM innovation (PII/DOO) and new Sport segment entrants (Honda/Kawasaki).
“Snowmobiles: Unit retail down in Jan. due to less favorable snow/temps. Season-to-date retail tracking flat vs. +3.5% growth for the 2018-19 season. We believe inventories remain clean.”