This commentary previously appeared on Real Money Pro on Aug. 3, 2016, at 7 a.m. ET. Click here to learn about this dynamic market information service for active traders.
There are a number of significant cross-currents going on these days at motorcycle giant Harley-Davidson (HOG) , so I think it's worth doing a quick update on the stock.
HOG Had Decent 2Q Earnings
Harley last week reported a modest second-quarter earnings beat, along with in-line revenue results.
On the plus side, the firm enjoyed significant U.S. market-share progress during the quarter. After losing share over the past year, Harley saw its portion of the U.S. market rise two percentage points year over year to 49.5%. That's a significant positive. Likewise, HOG said that international-sales trends remained strong.
On the downside, the company said U.S. sales trends were far worse industrywide than expected. So, HOG lowered its 2016 sales forecast to 264,000 to 269,000 bikes from a previous 269,000-to-274,000 range. Management also cut its margin outlook for the year to 15% to 16% from an earlier 16%-to-17% range.
Wall Street's Mixed Reactions
The weaker guidance prompted analysts to cut their 2016 earnings estimates for Harley to $3.82 to $3.88 per share from about $3.97 previously. Two analysts also downgraded the stock on Friday, while a third followed suit on Monday (although a different analyst actually upgraded the stock the same day).
Normally, analyst downgrades and weaker earnings outlooks spark a pretty healthy selloff for a stock, at least in the short term. But HOG only had an initial selloff on Thursday morning after releasing its earnings in the pre-market. The stock rebounded later in the day and closed higher for the session, then rallied robustly on Friday amid a sixfold pickup in daily volume.
Traders attributed this strong upward move to takeover speculation. I don't have any special insight into that, but I do believe that Harley's post-earnings rally is too powerful to ignore.
The Bottom Line
Even though HOG's short-term outlook has hit a pothole, I still like the company for intermediate- and long-term rides.
I also take great comfort in the fact that Harley seems to have turned a corner on losses, and I'm attracted to the company's superior management team and laser focus on enhancing shareholder value. And as for the takeover rumors, I believe a private-equity deal looks both doable and ultimately very lucrative for any buyer.
I've recommended HOG over the past year, most recently suggesting on July 7 that current stockholders add to their positions. (The stock was trading at about $47.25 then vs. yesterday's $51.46 close.)
If you've followed my advice to this point, then I'd suggest sticking with HOG here. I wouldn't chase any post-earnings rally, but would consider adding to a position if the stock pulls back to the $47-a-share area.