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Recall of Harley Touring, Street bikes likely to have ‘mininal impact,’ analyst says

In a research note provided to Powersports Business on Monday, Wells Fargo Securities analyst Tim Conder reports that historically “these types of recalls have had minimal impact on share price.”

Here’s how Conder assesses the recalls:

“HOG issued two separate recalls on Touring and Street units. The first recall covers 127,000 MY 2014 Touring bikes (including Trikes) for an issue with the hydraulic clutch not properly disengaging. The repair involves replacing a small plastic ring inside the master cylinder on the handlebar (~1 hour of labor). The second recall covers 1,300 MY 2015 Street units for a potential issue with the fuel tank leaking. If inspection reveals an issue, the repair involves replacing the fuel tank (<1 hour of labor). Harley voluntarily issued both recalls, neither of which involves a ‘do not ride’ order. A few minor injuries have been reported related to the Touring recall, while none has been reported for the Street recall (no deaths in either case). Historically, these types of recalls have had minimal impact on share price. Bottom Line: Build positions in HOG.”

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Conder estimates that with a “current labor average of ~$90/hour, we estimate the total EPS impact to be $0.06 in Q3 based on ~128K units at an average cost of $150 in parts and labor, yielding a $19.2MM reserve expense ($12.4MM after applying a normalized effective tax rate of 35.5%).”

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