Friday, January 18, 2008

Harley Davidson Reduced to "Sell", Time To Buy Soon

Things are shaping up nicely for a purchase real soon.

Harley-Davidson (HOG) was downgraded to sell from hold by Citigroup (C) on Wednesday. Citi said that U.S. retail sales at the motorcycle maker may drop 10% to 12% in the current quarter. International sales also are showing early signs of moderating growth, though it said there are probably one or two quarters before it will materialize in the company's European retail sales or shipment numbers.

I have commented on my admiration and desire to own shares in the world's #1 motorcycle maker in the world in the past. With shares trading at levels not seen since late 2000 and early 2001, the time is getting near.

In October Harley forcasted FY 2007 EPS of $3.63 to $3.77 a share and said 2008 would see 4% to 7% growth, a 20 million share repurchase plan and increased the dividend 20%. Current earnings estimates are for $3.86 a share in 2008 or virtually flat growth. At that level shares will trade at 9.7 times earnings and yield 3%.

Next Friday HOG reports and gives guidance for 2008. I am very comfortable owning shares at this level but am going to hold off just in case they drop a bomb next week . Now if they do and shares crater, I'll be buying. If they do not and shares rally, I will be a buyer and be out a few bucks appreciation. Right now, the markets is spooked and bad news gets far more downside action (ask Intel (INTC)) than good news does upside.

Simply put, the risk is for greater losses than gains next week. So I sit. Content either way to wait and see what happens before jumping in.

Disclosure: Long Citi, None in HOG yet...

Todd Sullivan's- ValuePlays

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