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Why Analysts Are Cautious about Harley-Davidson Stock in June

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Harley-Davidson in 2016

In the heavyweight motorcycle segment, Harley-Davidson (HOG) is the worlds’ most popular manufacturer. Since the company began, Harley has maintained its own premium space in the crowded motorcycle market. In 2016, HOG stock impressed investors by delivering positive returns of more than 28.0%. However, the company has been facing several operational challenges this year, which has hurt investor sentiments.

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Analysts on Harley-Davidson stock

According to data compiled by Reuters on June 13, 2017, about 73.0% of analysts covering Harley-Davidson stock have given it a “hold” recommendation. About 23.0% have recommended a “buy,” while the remaining 5.0% have maintained a bearish view on the company, giving it a “sell” recommendation.

On June 13, Harley-Davidson’s consensus 12-month target price was $58.35, which was about 9.0% higher than its market price of $53.69.

What’s driving pessimism?

In 1Q17, Harley-Davidson’s global revenues stood at ~$1.5 billion, a 14.2% fall on a year-over-year basis. Its profit margins also suffered in the first quarter due to a negative product mix and lower motorcycle sales.

These negative earnings results could diminish analysts’ future growth estimates for Harley-Davidson. That could be the primary reason that analysts are maintaining a cautious view on HOG stock.

Due to its premium product portfolio, Harley-Davidson’s profit margins are still better than legacy automakers (XLY) Ford (F), General Motors (GM), and Fiat Chrysler (FCAU).

In the next part, we’ll compare auto companies’ valuation multiples in June 2017.

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