Tag: davidson

Upgrades
Wright Medical (WMGI)- Leerink Swann Mkt Perform » Outperform
Axsys Technologies (AXYS)- Boenning & Scattergood Market Perform » Market Outperform
Trimble Navigation (TRMB)- Piper Jaffray Neutral » Buy
Emulex (ELX)- Morgan Keegan Mkt Perform » Outperform
Synovus (SNV)- Bernstein Mkt Perform » Outperform
Health Management (HMA)- Credit Suisse Neutral » Outperform
Tenet Healthcare (THC)- Credit Suisse Neutral » Outperform
Northrop Grumman (NOC)- Cowen & Co Neutral » Outperform
Sohu.com (SOHU)- Citigroup Hold » Buy
Progenics Pharm (PGNX)- Citigroup Sell » Hold
Baidu.com (BIDU)- Citigroup Hold » Buy
Infinity Prpty & Casualty (IPCC)- Piper Jaffray Neutral » Buy
Phase Forward (PFWD)- Friedman Billings Mkt Perform » Outperform
Newmont Mining (NEM)- CIBC Wrld Mkts Sector Underperform » Sector Perform
YRC Worldwide (YRCW)- Morgan Keegan Underperform » Mkt Perform
Virgin Mobile USA (VM)- Bear Stearns Underperform » Peer Perform
Northrop Grumman (NOC)- JP Morgan Neutral » Overweight
Aetna (AET)- Credit Suisse Underperform » Neutral
Harte-Hanks (HHS)- Deutsche Securities Sell » Hold
Janus Capital (JNS)- Friedman Billings Underperform » Mkt Perform

Downgrades
Nike (NKE)- McAdams Wright Ragen Buy » Hold
AmericanWest Banc (AWBC)- DA Davidson Buy » Neutral
Columbia Sportswear (COLM)- McAdams Wright Ragen Buy » Hold
Raytheon (RTN)- JP Morgan Overweight » Neutral
SiRF Technology (SIRF)- Dougherty & Company Neutral » Sell
NETGEAR (NTGR)- BWS Financial Strong Buy » Buy
Arch Coal (ACI)- Caris & Company Average » Below Average
Massey Energy (MEE)- Caris & Company Buy » Above Average
Peabody Energy (BTU)- Caris & Company Above Average » Average
Banco Brad SA (BBD)- Bear Stearns Outperform » Peer Perform
3M (MMM)- Sterne Agee Buy » Hold
Fidelity National Information Services (FIS)- Barrington Research Outperform » Mkt Perform
T. Rowe Price (TROW)- Sandler O’Neill Hold » Sell
UCBH Holdings (UCBH)- BMO Capital Markets Outperform » Market Perform
AMBAC Fincl (ABK)- Piper Jaffray Buy » Neutral
Dover Downs Gaming (DDE)- KeyBanc Capital Mkts Buy » Hold
EMCOR Group (EME)- KeyBanc Capital Mkts Buy » Hold
Ford Motor (F)- Bear Stearns Peer Perform » Underperform
BJ Restaurants (BJRI)- Jefferies & Co Buy » Hold
EastGroup (EGP)- Wachovia Outperform » Mkt Perform
Dvlps Divers Realty (DDR)- RBC Capital Mkts Outperform » Sector Perform
Ford Motor (F)- JP Morgan Overweight » Neutral
America Movil SA (AMX)- Deutsche Securities Buy » Hold

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Harley Davidson (HOG) gave more insight into the primary reason earnings are dropping in the earnings call.

Financial Services:
“Harley-Davidson Financial Services delivered first quarter operating income of $34.9 million a decrease of $24 million or 40.8% compared to last year’s first quarter. This decrease is primarily due in a reduction in income from securitization. As most of you are aware the first quarter was a challenging time in the securitization markets. In the first quarter of 2007 HDFS sold $540 million of retail motorcycle loans. As part of the transaction HDFS retained $54 million of the subordinated securities on its balance sheet and recognized a loss totaling $5.4 million. This compares to an $800 million securitization transaction with a gain of $13 million during last year’s first quarter. The loss in the first quarter of 2008 was driven by increased securitization funding costs due to capital market volatility and expectation of higher credit losses compared to historical trends.”

“HDFS originated $518 million in retail motorcycle loans in the first quarter of 2008 compared to $630 million in the first quarter of 2007.”

“In terms of credit performance the 30 plus day delinquency rate for managed retail motorcycle loans was 4.78% at the end of the first quarter of 2008 compared to 4.08% at the end of the first quarter of 2007. Consistent with seasonal trends over the past several years’ delinquencies declined from the fourth quarter of 2007 to the first quarter of 2008 and credit losses on managed retail motorcycle loans were 2.71% for the first quarter of 2008 compared to 2.28% for the same period last year.”

“During the quarter the percentage of subprime loans outstanding remain within our historical growth range of 25 to 30% of managed retail loan receivables.”

Pretty straight forward stuff. Delinquencies have risen but not by any means at an alarming rate. The real problem is the ability for HOG to sell the loans at a profit. This is not any different than any other firm trying to sell securitized loans.

The key is that they are not having any problems funding additional loans and are not being forced to hold more than they want…

This will just take some time.

Disclosure (“none” means no position):Long HOG

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Who would have thought major banks and a motorcycle would have the same issue.

Harley Davidson released results today and while sales and profits fell, share repurchases caused EPS to rise.

Revenue for Q1 was $1.31 billion compared to $1.18 billion in the year-ago quarter, a 10.8 percent increase. Net income for the quarter was $187.6 million compared to $192.3 million, a decrease of 2.5 percent compared to the first quarter of 2007. First quarter diluted earnings per share (EPS) were $0.79, a 6.8 percent increase compared to last year’s $0.74. Last years results were impacted by a three week strike by about $.03 cents per share.

CEO Jim Zeimer said “For 2008, the Company now expects earnings per share to decrease between 15 and 20 percent compared to 2007 resulting in expected earnings per share of $3.00 to $3.18.” Zeimer said that he expect to ship about 8% fewer bikes than last year.

During the first quarter, worldwide retail sales of Harley-Davidson motorcycles decreased 5.6 percent compared to the prior year quarter. In the U.S., retail sales of Harley-Davidson motorcycles decreased 12.8 percent for the quarter while the heavyweight motorcycle industry in the U.S. decreased 14.0 percent.

Retail sales of Harley-Davidson motorcycles increased 16.8 percent in international markets during the first quarter of 2008 compared to the first quarter of 2007. First quarter retail sales increased 31.1 percent in Canada; the Europe Region was up 7.8 percent; the Asia Pacific Region was up 19.5 percent; and the Latin America Region was up 53.3 percent.

Cash and marketable securities totaled $333.2 million as of March 30, 2008 vs $310 million last year. HOG repurchased 2.6 million shares of its common stock at a cost of $100.1 million during the first quarter of 2008. On March 30, 2008, the Company had 236.5 million shares of common stock outstanding.

The sales decline in total bikes does diminish much of the “discretionary purchase” talk that has been bantered about. While for a segment of the population they are, in this environment, an 8% decrease from the second strongest year in the company’s history hardly qualifies the purchase as purely discretionary.

So then, if sales are not falling off a cliff and merchandise and parts sales (this means people are modifying existing bikes) are actually increasing, what is the issue?

Here is the issue. Harley-Davidson Financial Services (HDFS) reported first quarter operating income of $34.9 million, a decrease of $24.0 million or 40.8 percent compared to the year-ago quarter. The decrease is primarily due to a reduction in income from securitization. Has HDFS just met last years results, EPS for Q1 would have been $.89 a share. Of course we do not live in a world of “what if’s” but if we are trying to figure out where the issue is, we have to do the exercise.

Essentially HOG faces the same problems Citigroup (C), Merrill Lynch (MER), Wachovia (WB), Bank of America (BAC) and other financial services operators are, people will not buy (or are doing so a vastly lower profit margins) their securitized loans.

Of all the possible reason for an EPS reduction, this has to be the best. Sales are holding up despite predictions of a worse number and international operations are going full bore (the real impact here will not be fully felt until 2009). Simply put, the business of selling bikes is not being severely strained.

It is credit. Not losses on loans, but HOG’s ability to repackage them and sell them for a nice profit. It does also mean that should the credit environment right itself some this this summer, you may see a dramatic revision to the upside from here.

Either way, I’ll take my 3.5% yield and wait.

Disclosure (“none” means no position):Long HOG,C, WB, None

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Who would have thought major banks and a motorcycle would have the same issue.

Harley Davidson released results today and while sales and profits fell, share repurchases caused EPS to rise.

Revenue for Q1 was $1.31 billion compared to $1.18 billion in the year-ago quarter, a 10.8 percent increase. Net income for the quarter was $187.6 million compared to $192.3 million, a decrease of 2.5 percent compared to the first quarter of 2007. First quarter diluted earnings per share (EPS) were $0.79, a 6.8 percent increase compared to last year’s $0.74. Last years results were impacted by a three week strike by about $.03 cents per share.

CEO Jim Zeimer said “For 2008, the Company now expects earnings per share to decrease between 15 and 20 percent compared to 2007 resulting in expected earnings per share of $3.00 to $3.18.” Zeimer said that he expect to ship about 8% fewer bikes than last year.

During the first quarter, worldwide retail sales of Harley-Davidson motorcycles decreased 5.6 percent compared to the prior year quarter. In the U.S., retail sales of Harley-Davidson motorcycles decreased 12.8 percent for the quarter while the heavyweight motorcycle industry in the U.S. decreased 14.0 percent.

Retail sales of Harley-Davidson motorcycles increased 16.8 percent in international markets during the first quarter of 2008 compared to the first quarter of 2007. First quarter retail sales increased 31.1 percent in Canada; the Europe Region was up 7.8 percent; the Asia Pacific Region was up 19.5 percent; and the Latin America Region was up 53.3 percent.

Cash and marketable securities totaled $333.2 million as of March 30, 2008 vs $310 million last year. HOG repurchased 2.6 million shares of its common stock at a cost of $100.1 million during the first quarter of 2008. On March 30, 2008, the Company had 236.5 million shares of common stock outstanding.

The sales decline in total bikes does diminish much of the “discretionary purchase” talk that has been bantered about. While for a segment of the population they are, in this environment, an 8% decrease from the second strongest year in the company’s history hardly qualifies the purchase as purely discretionary.

So then, if sales are not falling off a cliff and merchandise and parts sales (this means people are modifying existing bikes) are actually increasing, what is the issue?

Here is the issue. Harley-Davidson Financial Services (HDFS) reported first quarter operating income of $34.9 million, a decrease of $24.0 million or 40.8 percent compared to the year-ago quarter. The decrease is primarily due to a reduction in income from securitization. Has HDFS just met last years results, EPS for Q1 would have been $.89 a share. Of course we do not live in a world of “what if’s” but if we are trying to figure out where the issue is, we have to do the exercise.

Essentially HOG faces the same problems Citigroup (C), Merrill Lynch (MER), Wachovia (WB), Bank of America (BAC) and other financial services operators are, people will not buy (or are doing so a vastly lower profit margins) their securitized loans.

Of all the possible reason for an EPS reduction, this has to be the best. Sales are holding up despite predictions of a worse number and international operations are going full bore (the real impact here will not be fully felt until 2009). Simply put, the business of selling bikes is not being severely strained.

It is credit. Not losses on loans, but HOG’s ability to repackage them and sell them for a nice profit. It does also mean that should the credit environment right itself some this this summer, you may see a dramatic revision to the upside from here.

Either way, I’ll take my 3.5% yield and wait.

Disclosure (“none” means no position):Long HOG,C, WB, None

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Upgrades

AmericanWest Banc (AWBC)- DA Davidson Neutral » Buy $18
Northwest Airlines (NWA)- Credit Suisse Neutral » Outperform
Delta Air Lines (DAL)- Credit Suisse Neutral » Outperform
Seagate Tech (STX)- Caris & Company Average » Above Average
EuroBancshares (EUBK)- Keefe Bruyette Mkt Perform » Outperform
SBA Comm (SBAC)- Soleil Hold » Buy
Crown Castle (CCI)- Soleil Hold » Buy
Medco Health Solutions (MHS)- Credit Suisse Neutral » Outperform
Diamond Offshore (DO)- JP Morgan Neutral » Overweight
Ross Stores (ROST)- JP Morgan Neutral » Overweight
Atlas America (ATLS)- Friedman Billings Mkt Perform » Outperform
Aventine Renewable Energy (AVR)- Broadpoint Capital Underperform » Neutral
BP (BP)- JP Morgan Neutral » Overweight
Wright Medical (WMGI)- JP Morgan Neutral » Overweight

Downgrades

Foundry Ntwks (FDRY)- Collins Stewart Buy » Hold
Seaspan (SSW)- Cantor Fitzgerald Buy » Hold
Ixia (XXIA)- Ferris Baker Watts Buy » Neutral
Tollgrade (TLGD)- Ferris Baker Watts Buy » Neutral
Foundry Ntwks (FDRY)- BWS Financial Buy » Sell
General Electric (GE)- Credit Suisse Outperform » Neutral
Pinnacle (PNK)- KeyBanc Capital Mkts Hold » Underweight
Garmin (GRMN)- Oppenheimer Outperform » Perform
IdaCorp (IDA)- JP Morgan Neutral » Underweight
Abercrombie (ANF)- JP Morgan Overweight » Neutral
Ixia (XXIA)- JMP Securities Strong Buy » Mkt Outperform
Smith Intl (SII)- Citigroup Buy » Hold
Cintas (CTAS)- Lehman Brothers Overweight » Equal-weight
Zoran (ZRAN)- Jefferies & Co Buy » Underperform
Total S.A. (TOT)- JP Morgan Overweight » Neutral
Valspar (VAL)- JP Morgan Overweight » Neutral
Johnson Controls (JCI)- JP Morgan Overweight » Neutral
Ensco (ESV)- Citigroup Buy » Hold
BlackRock (BLK)- Wachovia Outperform » Mkt Perform
Millennium Pharm (MLNM)- Robert W. Baird Outperform » Neutral
Red Robin Gourmet (RRGB)- Wachovia Outperform » Mkt Perform
Hershey Foods (HSY)- Bernstein Mkt Perform » Underperform

Disclosure (“none” means no position):

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Upgrades

AmericanWest Banc (AWBC)- DA Davidson Neutral » Buy $18
Northwest Airlines (NWA)- Credit Suisse Neutral » Outperform
Delta Air Lines (DAL)- Credit Suisse Neutral » Outperform
Seagate Tech (STX)- Caris & Company Average » Above Average
EuroBancshares (EUBK)- Keefe Bruyette Mkt Perform » Outperform
SBA Comm (SBAC)- Soleil Hold » Buy
Crown Castle (CCI)- Soleil Hold » Buy
Medco Health Solutions (MHS)- Credit Suisse Neutral » Outperform
Diamond Offshore (DO)- JP Morgan Neutral » Overweight
Ross Stores (ROST)- JP Morgan Neutral » Overweight
Atlas America (ATLS)- Friedman Billings Mkt Perform » Outperform
Aventine Renewable Energy (AVR)- Broadpoint Capital Underperform » Neutral
BP (BP)- JP Morgan Neutral » Overweight
Wright Medical (WMGI)- JP Morgan Neutral » Overweight

Downgrades

Foundry Ntwks (FDRY)- Collins Stewart Buy » Hold
Seaspan (SSW)- Cantor Fitzgerald Buy » Hold
Ixia (XXIA)- Ferris Baker Watts Buy » Neutral
Tollgrade (TLGD)- Ferris Baker Watts Buy » Neutral
Foundry Ntwks (FDRY)- BWS Financial Buy » Sell
General Electric (GE)- Credit Suisse Outperform » Neutral
Pinnacle (PNK)- KeyBanc Capital Mkts Hold » Underweight
Garmin (GRMN)- Oppenheimer Outperform » Perform
IdaCorp (IDA)- JP Morgan Neutral » Underweight
Abercrombie (ANF)- JP Morgan Overweight » Neutral
Ixia (XXIA)- JMP Securities Strong Buy » Mkt Outperform
Smith Intl (SII)- Citigroup Buy » Hold
Cintas (CTAS)- Lehman Brothers Overweight » Equal-weight
Zoran (ZRAN)- Jefferies & Co Buy » Underperform
Total S.A. (TOT)- JP Morgan Overweight » Neutral
Valspar (VAL)- JP Morgan Overweight » Neutral
Johnson Controls (JCI)- JP Morgan Overweight » Neutral
Ensco (ESV)- Citigroup Buy » Hold
BlackRock (BLK)- Wachovia Outperform » Mkt Perform
Millennium Pharm (MLNM)- Robert W. Baird Outperform » Neutral
Red Robin Gourmet (RRGB)- Wachovia Outperform » Mkt Perform
Hershey Foods (HSY)- Bernstein Mkt Perform » Underperform

Disclosure (“none” means no position):

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Upgrades
Wolverine (WWW)- Sterne Agee Hold » Buy
Washington Mutual (WM)- DA Davidson Underperform » Neutral
Prudential Plc (PUK)- Keefe Bruyette Underperform » Outperform
Sealy (ZZ)- Morgan Keegan Mkt Perform » Outperform
GrafTech Intl (GTI)- Oppenheimer Perform » Outperform
Canadian Natrl Res (CNQ)- Lehman Brothers Equal-weight » Overweight
Fairport Comms (FRP)- Soleil Hold » Buy

Downgrades
Sigma Designs (SIGM)- Collins Stewart Buy » Hold
Mannkind (MNKD)- Leerink Swann Outperform » Mkt Perform
LifeCell (LIFC)- Roth Capital Buy » Hold
Nektar Therapeutics (NKTR)- Soleil Buy » Hold
ING Group (ING)- Keefe Bruyette Mkt Perform » Underperform
Sun Microsystems (JAVA)- Caris & Company Above Average » Average
Arch Coal ACI (HSBC)- Securities Overweight » Neutral
Clear Channel (CCU)- Stanford Research Buy » Hold
Spansion (SPSN)- FTN Midwest Buy » Neutral
ITT Educational (ESI)- Piper Jaffray Buy » Neutral
I-many (IMNY)- Roth Capital Buy » Hold
Nationwide Health (NHP)- KeyBanc Capital Mkts Buy » Hold
Layne Christensen (LAYN)- Morgan Joseph Buy » Hold
Urban Outfitters (URBN)- Piper Jaffray Buy » Neutral
Bed Bath & Beyond (BBBY)- Piper Jaffray Neutral » Sell
Corinthian Colleges (COCO)- Piper Jaffray Buy » Neutral
Emergency Medical Services (EMS)- Credit Suisse Neutral » Underperform
MSC Industrial (MSM)- Jefferies & Co Buy » Hold
Salesforce.com (CRM)- Bernstein Outperform » Mkt Perform
Estee Lauder (EL)- Piper Jaffray Neutral » Sell
Draxis Health (DRAX)- Jesup & Lamont Buy » Neutral

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Upgrades
Wolverine (WWW)- Sterne Agee Hold » Buy
Washington Mutual (WM)- DA Davidson Underperform » Neutral
Prudential Plc (PUK)- Keefe Bruyette Underperform » Outperform
Sealy (ZZ)- Morgan Keegan Mkt Perform » Outperform
GrafTech Intl (GTI)- Oppenheimer Perform » Outperform
Canadian Natrl Res (CNQ)- Lehman Brothers Equal-weight » Overweight
Fairport Comms (FRP)- Soleil Hold » Buy

Downgrades
Sigma Designs (SIGM)- Collins Stewart Buy » Hold
Mannkind (MNKD)- Leerink Swann Outperform » Mkt Perform
LifeCell (LIFC)- Roth Capital Buy » Hold
Nektar Therapeutics (NKTR)- Soleil Buy » Hold
ING Group (ING)- Keefe Bruyette Mkt Perform » Underperform
Sun Microsystems (JAVA)- Caris & Company Above Average » Average
Arch Coal ACI (HSBC)- Securities Overweight » Neutral
Clear Channel (CCU)- Stanford Research Buy » Hold
Spansion (SPSN)- FTN Midwest Buy » Neutral
ITT Educational (ESI)- Piper Jaffray Buy » Neutral
I-many (IMNY)- Roth Capital Buy » Hold
Nationwide Health (NHP)- KeyBanc Capital Mkts Buy » Hold
Layne Christensen (LAYN)- Morgan Joseph Buy » Hold
Urban Outfitters (URBN)- Piper Jaffray Buy » Neutral
Bed Bath & Beyond (BBBY)- Piper Jaffray Neutral » Sell
Corinthian Colleges (COCO)- Piper Jaffray Buy » Neutral
Emergency Medical Services (EMS)- Credit Suisse Neutral » Underperform
MSC Industrial (MSM)- Jefferies & Co Buy » Hold
Salesforce.com (CRM)- Bernstein Outperform » Mkt Perform
Estee Lauder (EL)- Piper Jaffray Neutral » Sell
Draxis Health (DRAX)- Jesup & Lamont Buy » Neutral

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There has been a flurry of posts flying around lately about Harley Davidson (HOG) and their status as a “discretionary” purchase. Now, while the choice to buy a motorcycle may be for some, riding a Harley is not necessarily. There is a huge segment of the Harley population that considers their cars their second mode of transportation.

I am reminded of a story told to me by a friend. His buddy called him and said he was bringing over his new Harley for him to see. As my friend came out to look at it, his buddy’s wife was sitting on the back of the bike. “Isn’t she the most beautiful thing you have ever seen?” he was asked. My friend then looked at me and said, “He was of course talking about the bike”. Ever here a story about that from a Mac user? Or a Ford (F) driver? Me either…

I think the confusion here may be based on the term “discretionary”. When I think of the word I think of mowing my lawn myself vs. having the kid down the street do it. Buying Coke (KO) or buying the generic store bought brand of soda. Going to the movies vs. waiting for it to come out and renting it. Those are truly discretionary purchases.

A Harley Davidson rider will never, ever, make the decision to NOT buy a Harley and instead hop on a Suzuki to “save a few bucks”. That very fact means there is a very large limit to just how discretionary the bikes are.

More “misinformation” is also bantered about that people do not have the money to spend “15k to 30K” for a bike. Now, I have been to a dealership lately and I can tell you there is a whole swath of bikes available for $8,000 to $12,000. That alone makes the potential affordability of it audience wider.

Now, all this is not to say that for some people the bike is discretionary. I as much said so last year when share were trading at all time high’s near $70. Shares have since cratered and sit under $40. Slowing sales and rising credit issues are the main culprits.

What has happened is Harley riders has slowed to rate at which the “trade up” their bikes to bigger, more expensive models. They have not decided to go with another brand. Were Harleys truly discretionary, this would be the trend. Rather than trading in an existing bike for another, riders are sticking with what they have. This is the reason recently the observation was made that the secondary market has remained so strong. The demand for the bikes is still there, people are just being more selective in their purchases.

Let’s not forget that this brand is so powerful people tattoo its logo on their skin. Ever see Google (GOOG) or Apple (AAPL) tattooed on anyone? We know how passionate those folks are about their products, yet it would seem they pale to those who ride HOG’s. You cannot both put a price tag on this and underestimate the power of the brand in people decision making process.

This passion means there is an in-elasticity to the “discretionary” aspect of the bikes. If that is true, and I believe it is, then we may have reached the limit of it and shares have bottomed. That is why I bought earlier in the year…

Another note: As expected, the labor issue has been put to rest.

Disclosure (“none” means no position):Long HOG, None

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There has been a flurry of posts flying around lately about Harley Davidson (HOG) and their status as a “discretionary” purchase. Now, while the choice to buy a motorcycle may be for some, riding a Harley is not necessarily. There is a huge segment of the Harley population that considers their cars their second mode of transportation.

I am reminded of a story told to me by a friend. His buddy called him and said he was bringing over his new Harley for him to see. As my friend came out to look at it, his buddy’s wife was sitting on the back of the bike. “Isn’t she the most beautiful thing you have ever seen?” he was asked. My friend then looked at me and said, “He was of course talking about the bike”. Ever here a story about that from a Mac user? Or a Ford (F) driver? Me either…

I think the confusion here may be based on the term “discretionary”. When I think of the word I think of mowing my lawn myself vs. having the kid down the street do it. Buying Coke (KO) or buying the generic store bought brand of soda. Going to the movies vs. waiting for it to come out and renting it. Those are truly discretionary purchases.

A Harley Davidson rider will never, ever, make the decision to NOT buy a Harley and instead hop on a Suzuki to “save a few bucks”. That very fact means there is a very large limit to just how discretionary the bikes are.

More “misinformation” is also bantered about that people do not have the money to spend “15k to 30K” for a bike. Now, I have been to a dealership lately and I can tell you there is a whole swath of bikes available for $8,000 to $12,000. That alone makes the potential affordability of it audience wider.

Now, all this is not to say that for some people the bike is discretionary. I as much said so last year when share were trading at all time high’s near $70. Shares have since cratered and sit under $40. Slowing sales and rising credit issues are the main culprits.

What has happened is Harley riders has slowed to rate at which the “trade up” their bikes to bigger, more expensive models. They have not decided to go with another brand. Were Harleys truly discretionary, this would be the trend. Rather than trading in an existing bike for another, riders are sticking with what they have. This is the reason recently the observation was made that the secondary market has remained so strong. The demand for the bikes is still there, people are just being more selective in their purchases.

Let’s not forget that this brand is so powerful people tattoo its logo on their skin. Ever see Google (GOOG) or Apple (AAPL) tattooed on anyone? We know how passionate those folks are about their products, yet it would seem they pale to those who ride HOG’s. You cannot both put a price tag on this and underestimate the power of the brand in people decision making process.

This passion means there is an in-elasticity to the “discretionary” aspect of the bikes. If that is true, and I believe it is, then we may have reached the limit of it and shares have bottomed. That is why I bought earlier in the year…

Another note: As expected, the labor issue has been put to rest.

Disclosure (“none” means no position):Long HOG, None

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Upgrades
Liberty Media (LINTA)- Janco Partners Mkt Perform » Accumulate
Phoenix Tech (PTEC)- Roth Capital Hold » Buy
Devon Energy (DVN)- JP Morgan Neutral » Overweight
Sappi Limited (SPP)- Credit Suisse Neutral » Outperform
National City (NCC)- Bear Stearns Underperform » Outperform
Marathon Oil (MRO)- Oppenheimer Perform » Outperform

Downgrades
Renasant (RNST)- Janney Mntgmy Scott Buy » Neutral
AbitibiBowater (ABH)- DA Davidson Neutral » Underperform
I-TRAX (DMX)- Dougherty & Company Buy » Sell
Plexus (PLXS)- Credit Suisse Outperform » Neutral
Copa Holdings (CPA)- UBS Buy » Neutral
Sourcefire (FIRE)- RBC Capital Mkts Outperform » Sector Perform
VMware (VMW)- Lazard Capital Buy » Hold
Art Technology (ARTG)- Roth Capital Buy » Hold
State Auto Fin (STFC)- Piper Jaffray Neutral » Sell
Infinity Prpty & Casualty (IPCC)- Piper Jaffray Buy » Neutral
Prosperity Bancshares (PRSP)- Sun Trust Rbsn Humphrey Buy » Neutral
FirstFed Financial (FED)- Credit Suisse Outperform » Neutral
Blackbaud (BLKB)- Jefferies & Co Buy » Underperform
Cisco Systems (CSCO)- UBS Buy » Neutral
Portugal Telecom (PT)- UBS Buy » Neutral
Chesapeake Energy (CHK)- JP Morgan Overweight » Neutral
Urban Outfitters (URBN)- Morgan Keegan Outperform » Mkt Perform
North Valley Bancorp (NOVB)- DA Davidson Buy » Neutral
AFLAC (AFL)- Banc of America Sec Buy » Neutral

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Upgrades
Liberty Media (LINTA)- Janco Partners Mkt Perform » Accumulate
Phoenix Tech (PTEC)- Roth Capital Hold » Buy
Devon Energy (DVN)- JP Morgan Neutral » Overweight
Sappi Limited (SPP)- Credit Suisse Neutral » Outperform
National City (NCC)- Bear Stearns Underperform » Outperform
Marathon Oil (MRO)- Oppenheimer Perform » Outperform

Downgrades
Renasant (RNST)- Janney Mntgmy Scott Buy » Neutral
AbitibiBowater (ABH)- DA Davidson Neutral » Underperform
I-TRAX (DMX)- Dougherty & Company Buy » Sell
Plexus (PLXS)- Credit Suisse Outperform » Neutral
Copa Holdings (CPA)- UBS Buy » Neutral
Sourcefire (FIRE)- RBC Capital Mkts Outperform » Sector Perform
VMware (VMW)- Lazard Capital Buy » Hold
Art Technology (ARTG)- Roth Capital Buy » Hold
State Auto Fin (STFC)- Piper Jaffray Neutral » Sell
Infinity Prpty & Casualty (IPCC)- Piper Jaffray Buy » Neutral
Prosperity Bancshares (PRSP)- Sun Trust Rbsn Humphrey Buy » Neutral
FirstFed Financial (FED)- Credit Suisse Outperform » Neutral
Blackbaud (BLKB)- Jefferies & Co Buy » Underperform
Cisco Systems (CSCO)- UBS Buy » Neutral
Portugal Telecom (PT)- UBS Buy » Neutral
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On Friday the United Steelworkers and International Association of Machinists and Aerospace Workers, Local 2-209, is expected t approve a 4 year deal with Harley Davidson (HOG). Terms have not been disclosed.

Last summer 2,900 workers in York., PA struck and finally agreed to a 12% pay raise over 4 years and the agreement is widely thought to be a blueprint for the current negotiations.

Now that HOG has put to rest labor issues the timing of this is very good for the company. Dealer inventories are reported to be tight all over and the spring selling season is beginning in earnest. With that being said, the last thing HOG would want at this time was a labor disruption that would cause delivery disruptions to dealers.

While 2008 is not supposed to be a banner year for sales by any means, all evidence is that the company and its dealer network have done a wonderful job controlling inventory levels.

With possible labor issues behind it, HOG will now be able to control production on its own term to assure steady inventory levels.

Disclosure (“none” means no position): Long HOG

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