When Harley-Davidson Inc. announces its first-quarter earnings on Thursday, the company's stock is likely to get hammered on Wall Street.

The collapse of the subprime loan market and the escalation of loan foreclosures are taking a toll on the Milwaukee motorcycle manufacturer.

The company already has acknowledged some of its problems, knocking its 2007 earnings growth guidance down to the 4 to 6 percent range, a far cry from the previous range of 11 to 17 percent. Long a Wall Street darling and a classic American brand, Harley's stock has plummeted 15 percent since February, as its motorcycle inventories ballooned and it negotiated through a labor strike at its production plant in York, Pa.

It used to be that you had to wait months, maybe even a year or so, to get a new Harley motorcycle through a dealer. Not anymore. About 10 to 15 percent of the new Harleys sold last year were bought by subprime borrowers, people who paid higher interest rates because of their shaky credit records.

Now, many of those folks can no longer meet the payments on those loans or their mortgages, many of which have been adjusted higher.

Harley has additional exposure to the subprime problem because its own financial arm, Harley-Davidson Financial Services, financed thousands of those loans that are now teetering on default.

So, the piling on already has begun among Wall Street lemmings.
Reese Fund analyst Grant Case has assigned a "Sell" rating to Harley's stock with a near-term price target of $50 per share.

According to Reese Fund's survey of Harley dealerships, HOG dealers have more cycles on their lots now than at any other time in the company's history. You see, bikes that are being returned because of loan foreclosures are further cooling the demand for new motorcycles.

"Given these challenges, Harley likely will use this quarter to take an earnings bath and use its strike in Pennsylvania as cover to do so, putting the stock at significant risk for downgrade and increasing pressure on an already battered stock," Case wrote in a research note earlier this month.

So, the Hog will be hammered Thursday. But wait, a contrarian view.

Author Michael Brush, an award-winning New York financial writer who has covered business and investing for The New York Times, Money magazine and the Economist Group, acknowledges the short-term duress facing the iconic Milwaukee-based manufacturer.

"The problems may only get worse," Brush wrote.

However, Brush remains confident in Harley's long-term prospects and believes the near-term freefall of the company's stock will create a buying opportunity.

"Harley-Davidson shares have taken a bumpy road downward, partly due to subprime loans. But investors who buy now could soon find themselves in Hog heaven," Brush wrote. "At some point, though, enough will be enough, and I think we are almost there. To be sure, traders could push Harley-Davidson stock down even more on worries that the company may announce bad news with its April 19 first-quarter earnings report. But since it's impossible to call an exact bottom in any stock dip, I'd buy part of a long-term position in the stock now with limit orders set under $59, and look for possible pullbacks from those levels to continue building a stake. Then I'd sit back and watch the stock return to the $75 high it touched last November, for a 30-percent gain from the current price."

So, look for the HOG to take a beating, but it will ride high again.