Harley-Davidson Soars After EU Drops Tariff

Harley-Davidson Inc. (HOG) is soaring in Monday’s pre-market after the United States agreed to remove section 232 steel and aluminum tariffs imposed on the European Union by President Trump in 2018. The EU reciprocated immediately and will lower their tariff on the motorcycle icon from 31% to 6%, effective January 1, 2022. The company responded by updating fiscal year 2022 guidance, lowering the tariff’s adverse impact from $200+ million to zero.

Millennials Key to Sales Growth

The stock has responded with a breakout above the 50-day moving average, marking the first time it’s traded through the barrier since July 12^th. The uptick should mark the end of a 6-month decline that’s relinquished nearly 25% and given up 100% of 2021’s year-to-date gains. Even so, it’s got a long way to go to match May 2014’s high in the mid-70s and win back a legion of millennials that have lost interest in the classic Harley design.

The company expressed gratitude in a pre-market release, noting “Today’s news is a big win for Harley-Davidson and our customers, employees and dealers in Europe. Our thanks go out to President Biden, Secretary Raimundo and the U.S. Administration, for their efforts in this negotiation. We are excited that this brings an end to a conflict that was not of our making, and in which Harley-Davidson had no place. This is an important course correction in U.S.-EU trade relations that will allow us to further Harley-Davidson’s position as the most desirable motorcycle brand in the world.”

Wall Street and Technical Outlook

Wall Street consensus is likely to improve in coming weeks, adding to an ‘Overweight’ rating based upon 6 ‘Buy’, 1 ‘Overweight’, 9 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $38 to a Street-high $70 while the stock is set to open Monday’s session just $1 above the low target. The median target at $50 looks like a reasonable upside target after the weekend agreement, setting the stage for a potential 25% uptick.

Harley-Davidson posted an all-time high near 75 in 2006 and fell into single digits during the 2008 bear market. It returned to the prior peak in 2013 and reversed once again, entering a secular decline that hit an 11-year low in the teens during 2020’s pandemic decline. Three rally waves into May 2021 stalled at the 50% selloff retracement, yielding a decline that pierced 200-day moving average in July. The stock is testing that level in the pre-market, with a breakout favoring an eventual test of the second quarter peak.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.