Harley-Davidson’s problems go most deeper than Trump’s trade fight (HOG)

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Shares of Harley-Davidson already sank 8% this week after a motorcycle builder announced new tariffs from a European Union will means a “tremendous cost increase,” and Morgan Stanley says a company’s problems go distant over any import taxes.

In a note to clients Friday, a bank pronounced Harley’s preference to pierce some prolongation of Europe-bound choppers abroad seemed unlikely.

“Will HOG unequivocally pierce prolongation to Thailand or India to make a bikes for a EU market? We are not convinced,” Adam Jonas, a bank’s automotive analyst, said. “While manufacturers have prolonged fit producing nearby finish markets to lessen taxes, logistics costs, and FX volatility… we don’t see Harley-Davidson deploying poignant collateral to furnish poignant volume of products in Asia for import into a EU as a medium-term or long-term solution.”

Morgan Stanley stays overweight on a stock, with a cost aim of $53 — $1 reduce than a prior target, though still 28% above where a batch was trade Friday.

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Still, Harley worries a association “is enchanting in a rather unsure PR strategy” by job out President Donald Trump, who triggered a European tariffs by levying a tax on alien steel and aluminum progressing this summer.

“Even before a tariff developments, estimates are vexed for association specific reasons that are really good known,” Jonas said. “We trust that these critical issues (e.g. disastrous demographic trends) are rather permanent and overshadowing absolute mercantile army that should work in HOG’s favor.”

Harley is in a midst of a decade-long turnaround devise that’s directed during anticipating new, younger riders to modify to a Harley brand, hopefully ensuing in aloft sales. The association saw a 12% unemployment in US sales in a many new gain report.

Morgan Stanley says that while general sales are an critical component of a company’s enlargement devise — Europe accounted for 38% of a brand’s sales in 2017 — a a US fan bottom that will keep Harley in business.

“We see a company’s greeting to a tariff underscores a few risks to this devise over intensity tellurian trade conflicts. Investors contingency conclude that general enlargement will expected be driven by a reduce brew products,hitting incremental margins,” Jonas said.

Harley-Davidson is down 18.8% this year.

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SEE ALSO: Harley-Davidson warns European tariffs will means a ‘tremendous cost increase’ (HOG)

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