Harley-Davidson (HOG) has recently been hit with a downgrade from Wells Fargo. According to Chasing Markets, the bank lowered its rating from “outperform” to “market perform” and cited a weakness in the market for large motorcycles, tariff uncertainty and a “long road to stabilization.”
Wells Fargo analyst Timothy Conder did however lift his price target from $40 to $41.
“As demographics and consumer preferences shift, large heavyweight motorcycles, regardless of brand, remain challenged,” Conder said. “We believe HOG’s plans for mid/small bikes, growing ridership, bringing in younger demographics to the brand and international expansion (led by Asia), collectively should provide meaningful growth opportunity over time.”
According to Conder, there is a risk of tariffs on any motorcycle imports to Europe, regardless of where they are made.
Conder wrote, “As demographics and consumer preferences shift, large heavyweight motorcycles regardless of brand, remain challenged with ongoing new/used pricing/supply dynamics and structural shift towards mid-size/smaller units.”
The analyst did note that the company is making the right moves by trying to reach out to younger demographics and grow its Asia business.
Earlier this year, UBS analyst Robin Farley remarked on a survey that found that 21- to 34-year-olds consider buying a bike for “ease of transportation,” whereas older buyers purchase bikes “as a hobby” or because “motorcycles are cool.” The survey polled 2,100 adults in the U.S. who were over the age of 21 from Sept. 1, 2018, to Sept. 21, 2018.
According to Farley, data suggest a considerable generational divide in attitudes toward heavyweight motorcycles, the sort of bikes sold by brands such as Harley and Polaris’ Indian brand.
“We believe this significant divergence in incentives to buy a new bike could be what is partly behind Harley’s and broader heavyweight motorcycle industry’s challenge to tap into a new segment of younger riders to drive growth,” Farley said. “So unless there is a generational shift among younger riders to see motorcycling as a hobby vs. means of transportation, the outlook for the heavyweight industry could continue to be more dependent on an aging demographic. Perhaps one hopeful sign for the industry is that younger potential buyers cited the second most common reason to buy a motorcycle is that it ‘goes with their self-image.’”
“There’s nothing new here,” Harley-Davidson told CNBC in a statement about the survey results. “Our advanced analytic capabilities allow us to deeply understand rider migration trends. In fact, our knowledge of riders informed our strategy to build the next generation of Harley-Davidson riders globally, which we launched in early 2017.”
Link: Chasing Markets