New Harley-Davidson CEO Jochen Zeitz “brings with him a high level of credibility that has been embraced by investors. As strategic changes are implemented over the next several quarters retail sales may struggle, but other key metrics, such as used bike prices and dealer inventory levels, should improve, providing ‘evidence’ the turnaround is taking hold.”
That insight is according to a research note provided to Powersports Business by BMO Capital Markets analyst Gerrick Johnson. Johnson notes that BMO is upgrading shares of Harley-Davidson (HOG) to Outperfom from Market Perform with a revised target price of $33 (from $23). “We are more positive about the outlook for the company given recent management changes,” Johnson adds.
Johnson goes on to report that “HOG parted ways with its former CEO, Matt Levatich, on February 28. During Mr. Levatich's tenure, worldwide retail sales declined in 18 of 19 quarters and HOG stock lost 46% of its value (vs. +41% for the S&P 500).
“Jochen Zeitz, former CEO of PUMA and HOG board member since 2007, enters the role of CEO with no prior motorcycle experience, though he brings plenty of experience in corporate transformations and brand management. We think the credibility Mr. Zeitz brings buys the company time and goodwill with investors during its ongoing turnaround efforts.
“While formulating a long-term plan, Mr. Zeitz has outlined a framework for change that the strategy will be based on; enhancing core strengths, narrowing its focus on the most profitable markets, and aligning PG&A strategy with the motorcycle strategy for holistic premium brand experience.
“The motor company will also be restricting the flow of new motorcycles shipments to dealers in an attempt to clear the channel, improve prices of new and used motorcycles in order to restore their premium brand, and also to streamline the dealer base.
“Retail sales is generally the metric investors judge HOG's performance by. But with the model year changeover moved to spring of 2021 rather than late August of this year, as well as a significant reduction in shipments to dealers, retail sales should prove to be meaningless as a metric of progress.
“Instead, the key metrics we expect investors to watch are used motorcycle prices and dealer inventory. We anticipate both new and used Harley-Davidson motorcycle prices to escalate rapidly, especially given a renewed interest in motorcycles as a social distancing activity. Early data points have been positive.
— Dave McMahon, editor, dmcmahon at powertsportsbusiness.com