Harley Davidson: industry outlook

Company Business

Harley-Davidson is the leading factor in the U.S. heavyweight motorcycle market with a 45 percent market share. HDI holds a 28 percent world market share in that class.

Summary and Recommendation

·Shares of this Pershing Recommended List Selection weakened as a result of management taking a conservative stance in planning 2004 production volumes. HDI's position is due to the possibility that the start-up of a new plant and the introduction of new models could hurt production. It is not due to demand for its products, which remains strong. The good news is that over the years management has been successful in surpassing its original production goals. We believe that could occur next year and therefore view the stock as especially attractive. Our 12-month target price of $62 suggests potential capital appreciation of 30 percent.

·Recently reported third quarter earnings were substantially above both Street and our expectations.

English: Harley-Davidson Hummer single-cylinder mo...

Harley-Davidson 1000 cc HT 1923

The 1490cc HD engine. Rubber mounted.

HDI gained market share in all of its markets. Operating leverage and a richer mix boosted margins, and its financial subsidiary had another solid quarter. This year's third quarter earnings were favorably affected by foreign exchange and were less affected by model changeover costs/disruptions than last year.

·Heavyweight motorcycle registrations in the U.S. grew 12 percent in 2002 despite soft economic conditions. HDI's registrations grew 18 percent in 2002. Through the first eight months of 2003, industry registrations rose 4.5 percent while for the first months HDI's registrations grew 12.9 percent. Industry growth in the mid single-digit area is forecast for 2003 with growth accelerating in 2004 to the high single-digit range. HDI is projected to continue to gain share.

·HDI is the industry leader with strong brand and product recognition. Management is focused on developing new products or improving existing ones, providing marketing/financial support to its...