Harley Davidson (HOG)....... Not Yet

Harley Davidson (HOG) released Q3 results Friday and said it expects its current "weakness" to persist into 2008.

Q3 profit fell 15.3 percent due to weak sales of its motorcycles in the U.S. Net income totaled $265 million, or $1.07 per share, compared with a profit of $312.7 million, or $1.20 per share, a year ago. Revenue dropped 5.8 percent to $1.54 billion from $1.64 billion last year.

Worldwide retail sales of Harley-Davidson motorcycles were flat in the quarter, down 0.2 percent ans shipments were down 10.8 percent to 86,535 units. Domestically, sales were down 2.5 percent, while the overall U.S. heavyweight market fell 4.4 percent. International sales were up 8.8 percent.

HOG maintained its earnings expectations for the year, which it lowered last month due to slumping U.S. sales. They expect 2007 net income to drop 4 percent to 6 percent, to a range of $3.69 to $3.77 per share

They also repurchased 9.7 million shares of stock, at a cost of $509 million, during the quarter. YTD, the company has repurchased 17.3 million shares at a cost of $1 billion.

BUY? No. Not yet. In February, I posted that the price then at $75 would fall and at $60, would present a good value. As the credit situation worsened throughout the spring and summer I updated HOG shares in June and lowered my target price to $54 dollars a share. Then, after a trio to Laconia, NH, based on my observations and after talking to the sales staff, I posted in August that Harley was going to experience more sales declines and that the price, then in the mid $50's was going to reach into the $40's before the year was out. Harley confirmed my observations a few weeks later and at that point I said "anything below $45 is a no brainer buy".

Shares today sit at $47, 37% off their highs. Buy? Just wait. There does not seem to be a impetus for shares and bike sales in the US anytime soon. Many Harley's recently were bought with home equity money or through Harley financing much of which was "subprime". Those financing avenues have dried up and do not look to rebound in the near future. This issue was addressed on the recent conference call when CFO Larry Hund said, "Consistent with previous quarters, HDFS continues to operate in a challenging consumer credit environment. Regarding past due accounts, the 30-day delinquency rate for managed retail motorcycle loans at the end of the third quarter was 4.91% compared to 4.46% for the third quarter of 2006. Managed retail loans include both those which we keep and those which we sell through securitization.

As expected, credit losses on managed retail motorcycle loans increased in the first nine months of 2007 compared to 2006. Losses totaled 1.65% on an annualized basis, compared to 1.18% for the first nine months of 2006. The increased losses are due to continued pressure on recovery values for repossessed motorcycles as well as a higher incidence of loss, primarily driven by the increase in delinquent accounts."

International sales will make up the difference and cause earnings to just stagnate rather than fall dramatically as witnessed in the last quarter. In Q3 international shipments of 20,779 units were up 24.8% compared to the same quarter last year. This international shipment mix represented 24% of our total third quarter shipment volumes compared to 17.2% in the third quarter 2006.

For the first nine months of the year, domestic shipments represented 73.2% of the total shipments, down from 77.5% compared to the same period last year. International shipments for the first nine months of the year represented 26.8% of the mix, up from 22.5% in the first nine months of 2006.

Impatient investors will get sick of sitting on dead money and begin to sell. We will see a share price below $45 if not this year, then early next. I am going to go even further and say we could get it for $42.

I do not see mush more downside unless the economy worsens further. If you need to own HOG shares, buy then here, your downside isn't not too great. If you can be patient, there is another 10% or more downside to shares.

I want to own Harley shares and think I just may get a great deal soon enough.

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