DTC - Harley Davidson Planet Fitness picked as resilient recession stocks by BofA

While leisure and retail names are “typically not good in recession” according to Bank of America, the bank is willing to bet on a few counterintuitively resilient names.

A research note released on Thursday indicated that the bank currently forecasts a mild recession is imminent. As such, consumer discretionary stocks are under pressure, especially in leisure and retail. In the current environment, inventory management and inflation mitigation add to the concern on sales. The bank explained that, in previous recessions, “value-oriented winners” were able to separate from the pack.

Per the bank’s analysts, Planet Fitness ( NYSE: PLNT ) and Harley Davidson appear the most promising opportunities at present.

“We see PLNT as the top positioned fitness company in a recession,” the note stated.

Strong foot traffic data, and historically resilient same store sales are key to promoting the team’s optimism. For example, same store sales rose over 20% during the Great Recession. Following this guide, the bank anticipates a return to pre-pandemic club usage by the end of the year/early 2023.

Harley Davidson ( HOG ) was selected as a top pick not for its historical performance, but for inventory tailwinds. The note declared the stock a "beneficiary that was constrained during COVID" amid supply chain issues and should capitalize on steady-demand.

“Supply chain constraints have dramatically restrained new motorcycle sales, which have actually declined 3% vs. 2019, but total new [and] used motorcycle sales are up +9% vs. 2019 on +12% growth in used motorcycle sales,” the research explained. “Our HOG full year new motorcycle sales forecast assumes worldwide shipments are more than 10% below 2019 levels and assuming a more normalized 2019 used/new sales ratio implies at least 20K of pent-up demand for new U.S. shipments.”

While a production shutdown was cited as a problem for second quarter earnings, the bank expects the company to “recapture lost production in [the second half of 2022].”.

By contrast, Solo Brands ( DTC ) is expected to decline. The bank nearly halved its price target from $19 to $10, anticipating a sales and margin erosion in coming quarters.

“We believe a valuation more in line with comparables is appropriate given elevated recession risk,” the note read, citing Weber ( WEBR ) as an appropriate peer.

Read more on earnings expectations for Harley Davidson .

For further details see: