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Trade of the Day: Harley Davidson (HOG)

We’ve opened bearish trade on Harley Davidson (HOG). As we embark on this first-quarter earnings season journey, one of the themes we expect to hear over and over again is how the rising value of the U.S. dollar (USD) is hurting top-line revenue for multi-national companies. When the USD gets stronger, the revenues companies generate overseas aren’t worth as much once they get repatriated and converted from whatever currency they were in — euros (EUR), Swiss francs (CHF) and so on — into USDs. We anticipate this will be a drag on Harley Davidson this quarter.

Last quarter, Harley Davidson reported that international sales were the saving grace for the company. International sales rose 9.2%, while domestic sales were down 1.6%, which led to the company missing Wall Street’s revenue estimates. We expect a similar type of announcement for the past quarter when the company announces on Tuesday, April 21, before the market opens. Unfortunately for HOG, we expect the international sales to add even less to the company’s top-line revenues this time since the USD rose even further during the first quarter.

Harley Davidson is in a downward-trending channel, and we anticipate the stock will drop to the bottom of that channel at around $59 either in the run up to or the aftermath of the company’s earnings announcement. There’s a chance the stock could drop back down to its October lows of around $55, but that is a secondary price target at the moment.

‘Buy to open’ the HOG May 60 Puts (HOG150515P00060000) for a maximum price of $1.30.

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