Interesting article:

http://www.thestreet.com/story/13387...o&cm_ven=YAHOO

Although Harley-Davidson (HOG - Get Report) seldom offers discounts on its bikes, its share price has fallen to the point where it might be hard for others to pass up.

On Friday, shares of the motorcycle maker spiked higher on heavy volume on speculation the company was approached for a leveraged buyout. Harley moved quickly to shoot down the rumors. "Harley-Davidson has periodically been the subject of marketplace speculation of various sorts, and it's our longstanding practice not to comment on market rumors and speculation," said a Harley-Davidson spokesman via email to TheStreet.

But with shares of the storied bike manufacturer down about 28% in the past year amid a disappointing stretch of earnings, it may not be so far-fetched that Harley would be viewed as an attractive leveraged buyout candidate. The company has built up significant brand equity through the years, and has worked diligently to re-tool its manufacturing facilities to more efficiently produce bikes. Further, Harley's debt to equity ratio is relatively low at 47%, giving a would-be financial buyer room to add debt to complete a big transaction.

"We see the dramatic sell-off from recently reported weakness in motorcycle sales as a major buying opportunity of one of the world's most iconic lifestyle brands and leading motorcycle manufacturers," said the research team at Tigress Financial Partners in a Nov. 30 note. Tigress Financial reiterated their buy rating on Harley's shares. As JP Morgan analyst Kevin Milota pointed out in an Oct. 23, since 1987, shares of Harley have traded at a forward price-to-earnings multiple of 16.4x -- today, shares trade at a forward P/E multiple of 11.5x, or a 30% discount to its historical valuation.

From Harley's perspective, it may be open to offers as a way to leave Wall Street's scrutiny in what has been a challenging year. The operating environment for Harley-Davidson is one that could be best characterized as ultra-competitive. Japanese motorcycle manufacturers such as Honda, Suzuki and Kawasaki have been able to price their bikes more competitively in the U.S. for over a year due to their currency's weakness.

Meanwhile, a key U.S. competitor to Harley-Davidson in Polaris (PII - Get Report) , which sells Victory and Indian motorcycles as well as an "autocycle" called the Slingshot, is finding success across much of its product line.

Harley's share of the U.S. motorcycle market, where it gets about two-thirds of all sales, has declined to 50% from 53.5% last year. "Everybody's taken a little bit of our share," said Harley-Davidson CEO Matt Levatich in an Oct. 22 interview with TheStreet.

And as Harley's market share has taken a hit, so has the bike manufacturer's financials. Harley reported third quarter earnings of 69 cents a share, falling shy of Wall Street estimates of 79 cents a share. In the U.S., Harley dealers sold 48,918 new bikes in the quarter, down from 50,167 a year earlier.

Harley said it expects to ship 265,000 to 270,000 motorcycles to dealers and distributors this year, down from a previous estimate of 276,000 to 281,000. Operating margins for the year are seen in the 16% to 17% range compared a prior forecast of 18% to 19%.

To right the ship, Harley intends to bolster its marketing by 65% in 2016 to reach new riders. Investments in new product development next year are seen rising by 35%.

"We need to raise our game in the marketplace in order to compete," said Levatich. The question now is whether that sharper focus could, and should, be done as a private company.

 

I'd be curious as to who the suitor would be. Harley's: product line, it's traditional customer base and its lifestyle market genre; are at one and the same time its best and its worst features.

 

Somebody in China who else, hell they supply 30% of the parts for them now anyway.......

 

By diluting their image with overseas components, accessories and apparel, they have lost their unique and endearing appeal. Maybe HD will sell of their bike production, and just maintain their clothing boutiques.

I, for one, will still be lined up to pay $70 for a $25 shirt, just because it says HD.

 

The downside of a public company is the group that controls the majority of the stock, controls the company.

 

If Harley can increase it's market share by lowering it's prices on motorcycles, does that increase it's value in the stock market?.,,,

 

Stock market valuation is a function of future earnings.
Rarely does a price cut result in higher profit.

New products driving demand have a greater impact.

Assuming Harley has a 15% profit margin on the price of a bike. (I have no idea what it is, just a guess)
A 10% price cut in the motorcycle wholesale price will cut profit margin 66%.

Will cutting prices 10% result in selling 66% more motorcycles?
If not, profits decrease.

Today's stock price is predicated on future earnings.
An action that would likely reduce future earnings will damage the stock price.

 

Would be interesting to say the least if Polaris were to take them over.....

 

Harleys current business model is failing and change needs to be made or it will die. $40k for outdated technology is priced out of the market. HD sales come from loyalists and as they age market share will continue to decline. The economy isn't helping either but it is hurting hd more than others. Why? Overpriced outdated technology, plain and simple.

 

Customer service is in the tank. Most dealers do not care about the customer once the sale is completed. Most of the service departments have attatudes that areas big as Mt. Rushmore. IMHO