The chatter on Wall Street of a Harley-Davidson (HOG) takeover could be the only thing accelerating shares of the iconic U.S. motorcycle maker these days.
The stock climbed more than 3% in afternoon trading Wednesday -- after being up as much as 7% -- on takeover talk sparked by a report by TheFly that indicated a takeover by private-equity giant KKR (KKR) . But the rumors seemed to be promptly debunked on the media circuit. (Harley shares were also buoyed Wednesday after a Road King Classic report that the iconic motorcycle manufacturer's latest Milwaukee-Eight engine could exceed initial performance expectations.)
But Reuters noted in a midday report that Harley-Davidson does not know of "anything going on" to explain the takeover talk, and CNBC's Morgan Brennan said in CNBC's "Halftime Report" that talk of a buyout by KKR was unfounded, citing people familiar with the matter.
And this isn't the first time Harley takeover speculation has sent shares roaring ahead, with TheStreet's Brian Sozzi citing in July that PE giant KKR could step in with a bid -- which also sent shares higher.
But let's look more closely before getting too bullish about the renewed buyout buzz. After all, the company's debt picture is not pretty. The $7.06 billion of debt booked in the second-quarter vs. trailing 12-month EBITDA of 1.3 billion puts the company at 5.4x levered. Now that's up from a leverage ratio of just 3.5x in 2014, when debt clocked in at about $5.5 billion on top of EBITDA of about $1.55 billion. (EBITDA is a standard valuation metric standing for earnings before interest, taxes, depreciation and amortization.)
And the increasing integration of smartphones in autos, a burgeoning market for ride-sharing, as well as an aging consumer base for Harley's iconic brand, could signal a rough road ahead for Harley shareholders.
As Wedbush analysts noted in a Tuesday report in which they lowered their third-quarter earnings estimates of Harley, the company faces "depressed used bike prices which are putting pressure on new bike sales and demand," new competiton with Springfield, Mass.-based Indian Motorcycle, as well as Japanese manufacturers that can discount their products in a favorable currency environment. (Wedbush, which maintains a Hold rating on Harley stock, did note that there is positive sentiment for Harley's Milwaukee Eight bike line-up, and that the company is a top-seller of power-sports equipment.)
But before Wall Street again pops a wheelie on news that the PE world could be looking to jump on the back of Harley, it may be best to first ask whether the company is beginning to veer to the wrong side road in a changing environment for autos and transportation.