Monday, September 25, 2006

Calls of Note Part 3

- UBS comments on Harley Davidson (NYSE:HOG) saying that according to otheir industry contacts, +6% in July, +14% in Aug. This outperformed overall industry sales, +5%-7% for July-Aug. YTD HOG 7-8% growth has slightly underperformed industry's 9.0% YOY. Harley helped by new engine and earlier model year, though strength is not just Harley - industry
sales also strong.

The firm has noted for some time long-term demand levels are below mgmt's long-term unit growth guidance of +5-9% and so mgmt may address on Oct 12th call. But given the strong retail performance so far this yr, Harley may not significantly alter long-term guidance at this point.

Maintains Neutral.

Notablecalls: With the weakening consumer, HOG remains a core short. Although I must say I'm surprised by the resilience of the co.

- Merrill Lynch comments on Polaris (NYSE:PII) saying their dealership checks indicate a relatively busy retail environment in the traditional ATV market driven by the upcoming hunting season and promotions. While inventory levels moderated slightly, the firm expects dealerships to be cautious in the near-term when ordering new ATVs owing to the difficult conditions of the last 15 months with weaker-than-expected sales and high inventory levels as well as the more conservative outlook for the overall US economy.

They estimate that Polaris's traditional ATV shipments (44% of total sales) will be down 12.5% and 4.0% in 2006 and 2007, respectively. However, as we move through next year, easier comparisons should provide a more favorable growth environment. Furthermore, they continue to hear continued strength in Ranger utility vehicle and Victory motorcycle sales, which should grow close to 20% in 2007 and offset the weakness in traditional ATVs.

Trading at approximately 11.4x 2007 EPS estimate, Polaris stock is below its 5-year and 10-year averages of 13.9x and 12.2x, respectively. Despite the mixed ATV outlook, they believe that most of the bad news is priced in the stock at this point in time and there could be increasing interest in consumer discretionary stocks especially if the Fed starts cutting rates next year. They are maintaining Buy rating but reducing tgt from $55 to $48.

Notablecalls: Not actionable but good to know category.

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