• The Harley (NYSE:HOG) growth engine has hit a demographic flat spot, writes Bill Alpert in a front-page Barron’s article, noting the company has missed annual shipment targets for several consecutive years.
  • Amidst slipping sales, management has been able to keep EPS on track through sizable buybacks, and dividend hikes have the stock yielding 2.5%.
  • Of course, a shareholder in HOG is not just investing in a manufacturer of motorcycles, but they’re also buying a bank. There’s been a steady deterioration of loans at Harley-Davidson Financial Services which could reflect the increasing struggle to find buyers, writes Alpert. Net loss rates on loan securitizations have risen to levels not seen since the last recession … Trouble is, we’re not in a recession.
  • CEO Matt Levatich says Harley isn’t using its financing arm to drive sales, and calls the rise in loss rates a “normalization.”
  • With so many secular challenges, concludes Alpert, the stock at 15x earnings – the high end of its valuation range – is hard to defend. Even a modest re-rating to something like 12x would mean a share price at less than $50 vs. Friday’s $56.56 close.