Investing.com -- Baird analysts downgraded Harley-Davidson (NYSE:HOG) shares to Neutral from Outperform on Wednesday, a move that follows a series of dealer checks that revealed concerning trends in Q3, including weak retail sales, an excess of inventory, and negative sentiment among dealers and customers.
The firm also trimmed its price target on the stock from $44 to $40.
The motorcycle maker’s shares fell around 4% in premarket trading.
According to Baird, dealers reported significant retail declines, with a double-digit percentage drop in collective sales. This underperformance relative to reported results suggests a mid-single-digit percentage decline is likely.
Factors contributing to the downturn include economic concerns, the impact of the election cycle, and diminished showroom traffic as customers shift to online purchases. High-interest rates were also cited as a deterrent, with one dealer highlighting the reluctance of consumers to finance expensive purchases at rates nearing 10%.
Dealers also raised concerns about inventory levels, with a majority of them indicating that stock is too high, leading to significant discounting and a race to the bottom on pricing. This has affected the used bike market as well, with many motorcycles selling below the manufacturer's suggested retail price.
“Our work suggests also that powersports dealers, generally, have more wood to chop to balance inventory. Net, we see risk to 2024 shipment guidance and cut our 2024/2025 shipment forecast,” Baird analysts said in a note.
Moreover, dealer sentiment has reached record lows, with scores of 2 out of 100 for current conditions and 9 out of 100 for the 3-5 year outlook. This dissatisfaction was highlighted in an August report by The Wall Street Journal, as dealers voiced their collective frustration with the company's policies, which some claim are leading to dealership closures and financial strain reminiscent of the 2008-09 recession.
Going forward, Baird's assessment points to downside risks for Harley-Davidson's future shipments and financial services, driven by weak demand, excessive inventory, and negative sentiment among dealers and stakeholders.
“We see value in the brand, but it is best to sit this ride out as pressure builds from riders, dealers, and shareholders,” analysts noted.