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Is Barron's Wrong On Harley-Davidson? Tigress Sees Further Upside From New Products, Global Expansion

Manikandan Raman

Ivan Feinseth of Tigress Financial reiterated his Buy rating on Harley-Davidson Inc (NYSE: HOG) as he believes new product launches and global expansion should drive further upside in the shares.

The analyst said the recent Barron’s article stating the company’s customer base is male pale and stale is “just plain wrong.”

Barron’s says Harley-Davidson faces demographic challenges as the company’s core buyers—middle-age non-Hispanic white males with a comfortable income—have declined in number in the past decade.

“U.S. Census projections for the core of that group, ages 45 to 49, foresee the fall continuing for at least another five years. The numbers in other brackets of that midlife demographic, ages 35 to 60, are projected to flatten out but not recover to earlier levels,” the article said.

 Feinseth is bullish on the prospects of Harley-Davidson, which has gained 31 percent over the last 12 months and outperformed S&P 500’s return of 18 percent.

Feinseth added that Harley-Davidson has the largest marketshare of women that ride motorcycles. The company has been successfully targeting all demographic groups including young adults, women, African-Americans and Hispanics.

The analyst pointed out that sales to these demographics have accounted for 40 percent of U.S. retail sales in 2016 versus 34 percent in 2010.

“We believe the weakness in demand during 2016 will start to correct itself in 2017,” Feinseth wrote in a note.

The analyst noted the motorcycle demand should rise along with uptick in the U.S. economy and consumer confidence, and Harley-Davidson is best positioned to benefit with its brand value, high quality products and margin strength.

In fact, Feinseth says the current estimates may prove conservative given the company’s strategy of new product introductions, innovations and increasing interest in ridership.

Following its launch of Milwaukee Eight engines last fall, the company plans to launch 50 new bikes over the next five years.

In addition, the analyst said the company’s credit wing Harley-Davidson Financial Services will continue to be a key driver of sales growth and profitability despite concerns over rising delinquencies.

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Latest Ratings for HOG

Date Firm Action From To
Mar 2017 Longbow Research Upgrades Underperform Neutral
Nov 2016 Northcoast Research Initiates Coverage On Neutral
Nov 2016 RBC Capital Upgrades Underperform Sector Perform

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