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Fly News Breaks for February 1, 2019
HOG
Feb 1, 2019 | 07:51 EDT
Following Harley-Davidson's Q4 results and weaker than expected 2019 guidance, Morgan Stanley analyst Adam Jonas said the narrative continues to be dominated by disappointing sales and lower margins, concluding that the secular pressures facing the motorcycle industry "appear to be well-entrenched." Given this, he believes Harley-Davidson management are faced with a "clear strategic decision" to either undergo a step-change in culture and product to focus on younger buyers or execute marginal adaptations while being "true to the core" and returning all excess cash as a runoff to investors. While he sees the latter option as less ambitious, he also thinks it has a greater likelihood of creating lasting value for shareholders. By rolling forward his hypothetical LBO valuation model to a 2019 start date, Jonas lowered his price target on Harley shares to $50 from $53, though he keeps an Overweight rating on the stock citing the cash generation of the core business as well as the "potentially untapped potential of the Harley-Davidson brand" for products such as a 4-wheel sports utility vehicle or truck.
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