Harley-Davidson Earnings: Sales Fall as Riders Tighten Purse Strings and Shipments Stall

Wide-moat Harley-Davidson failed to escape the macroeconomic headwinds that have been pervasive across the discretionary landscape in its third quarter. Moreover, given rising evidence that softer consumer spending is likely to persist, we think it is prudent to modestly decrease our 3% sales and 14% motorcycle operating margin estimates in 2024. As such, we plan to lower our $46.50 fair value estimate by a high-single-digit rate, which will still render shares undervalued. However, we'd caution investors that sentiment on the stock may not turn until consumer confidence stabilizes (facilitated by flat or declining interest rates), given the highly volatile macroeconomic environment. Shares are trading down 9% after earnings and 36% in 2023 as consumer spending on services has continued to outpace goods, and we don't believe spending on recreational products will turn around imminently (indeed, we think the powersports industry should prove virtually flat over the next five years).