Banc of America cut its investment recommendation on Harley-Davidson (HDI) to sell from neutral.
Analyst Gary Cooper cited rising retail inventory, decelerating demand, and lackluster response to 2006 model year bikes, which will likely lead to a decline in wholesale unit shipments in 2006. Cooper thinks Harley-Davidson needs to reduce retail inventory over the next few quarters (i.e. ship less), show lower margins due to reduced leverage of its fixed costs, and show lower Harley-Davidson Financial Services income due to higher short-term interest rates.
Cooper noted that share repurchases will mitigate some of the company's earnings per share downside. The analyst cut his $3.76 2006 earnings per share estimate to $3.33 and his price target to $36.