Shares of Harley-Davidson Inc. charged higher Tuesday, after Morgan Stanley analyst Adam Jonas urged investors to buy, citing their recent selloff, coupled with confidence in the motorcycle maker’s management and diminished electrification risks.
“If you can take some upfront bumps, we’d stay riding with HOG,” Jonas wrote in a note to clients.
Harley-Davidson’s stock HOG, +3.97% jumped 4.9% in afternoon trading. But before the rally, it had tumbled 21% month to date through Monday, and sank 27.4% since closing 21-month high of $ 51.72 on Feb. 2.
Jonas raised his rating to overweight from equal weight, as his $ 50 stock price target implies more than 25% upside from current levels.
He said falling below the $ 40 level has brought the stock valuation to well below historical average: “We believe the risk/reward of the stock is skewed to the upside amid the recent selloff,” Jonas wrote. (Risk/reward refers to the calculation investors make whether the potential reward from buying is worth the potential risk.)
But he said his new bullish stance on Harley starts with management, and the moves Chief Executive Jochen Zeitz has made since he took the reins of the company in May 2020. Those moves include rationalizing product lines, consolidating the dealer network and carving out the LiveWire business, which was the company’s electric-motorcycle business.
Since then, the stock has nearly doubled, after tumbling more than 60% in the three years prior. Meanwhile, since LiveWire Group Inc.’s stock LVWR, +1.27% made its debut on the New York Stock Exchange on Sept. 27, 2022, after the reverse merger with special-purpose acquisition company (SPAC) AEA-Bridges Impact Corp. was completed, it has dropped 23.5%.
“Creating stability and ‘ballast’ in the business has already begun to bear fruit,” Jonas wrote.
Given the recent selloff in Harley shares, Jonas believes much of investor concerns over how the recent downturn in the credit cycle, amid rising inflation and a slowing economy, has already been “priced in.” And he believes Harley’s customers, who generally have “stronger” credit profiles than the average auto consumer, can ride through the credit cycle downturn.
Harley’s stock has lost 5.3% year to date, while the S&P 500 index SPX, +1.30% has gained 3.8%.
“The de-rating in the stock’s multiple this year suggests continued anxiety among investors on the real-time motorcycle consumer,” Jonas wrote. “We are buyers of this recent weakness in the stock, as we don’t think the company is in a worse position now than it was over the last few years.”