Sergey Basalyga
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Harley-Davidson: Still Giving A Ride

Introduction

Harley-Davidson (HD), Inc., incorporated on March 8, 1991, is the parent company for the groups of companies doing business as Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). The сompany operates in two segments: the Motorcycles & Related Products (Motorcycles) and the Financial Services. The Motorcycles segment consists of HDMC, which designs, manufactures and sells street-legal Harley-Davidson motorcycles, as well as a line of motorcycle parts, accessories, general merchandise and related services. The сompany offers its products to retail customers through a network of independent dealers. The сompany operates around the world, including in North America; Europe, the Middle East and Africa (EMEA), Asia-Pacific and Latin America. The Financial Services segment consists of HDFS.

Performance

Currently, the share price is at the minimum over the last 2 years. They are being traded 28% lower than 2 years ago and 38% lower than the maximum value over the last 2 years.

Source: Made by authors, based on Yahoo Finance

However, analyzing the P/E ratio, we conclude that the shares are underpriced relative to the majority of the peers group.

Source: Made by authors, based on data from Amigobulls

The company’s success is underpinned by the fact that it reported revenue and net income growth over the last 5 years.

Source: Company’s report

This year Harley is facing difficulties connected to the insignificant decline in revenue and net income. They dropped by 5% and 8% respectively over the last 9 months.

Source: Company’s report

The shares plummeted sharply on the 20th of October after the Q3 report had been made.

Source: Yahoo Finance

But there is good news for the potential investors: the company is raising dividends. Over the last 9 months dividends were 0,93$ per share, which 13% higher than o the same period last year.

Source: Company’s report

Also, Harley had cut jobs, which contributed to total cost optimisation. 

Brand development

The appointment of a new CEO, Matt Levatich, who has been with the company since 1994, highlights the HD´s shift towards bulding up of its brand.

According to the Q3 report, the company’s reported marketing to be a central issue in the brand development and made it very clear investment would be made in a new product line. HD still maintain a good position in the US market, having 52,4% market share, but down 3,9% year-on-year. The company aims hold the number one share of the 601 cc motorcycle segment. While its low segment products may do well in the near-term, the company is probably going to embrace a wide range of customers, reducing the price even more, despite being number one selling motorcycle in developing markets.

Secondly, the сompany wants to develop the sports segment in the US market, though no more details were provided on that during the report

Also, Harley will put effort in increasing sales at a faster rate and grow the international dealer network by 150 to 200 new dealerships by 2020. There is an initiative to grow revenue and grow earnings faster than revenue through 2020, boosting the share price and outperforming S&P500 

Source: Company’s presentation

The share price is very dependent upon the results of its operating activities. That being said, a minor change in sales leads to a sharp decline/growth, showing 10-20% shift during the day of the company’s report.

Source: Yahoo Finance

Conclusion

We recommend to buy Harley-Davidson as the shares are underpriced, considering the P/E ratio. Additionally, the company’s shares are very dependent upon the quarterly report, so we expect revenue and net income growth in the Q4, as well as share price. Currently, the price fell more sharply than the operating results, while dividends have been raised which is very important to the investors. This all is added to the planned investment and job cuts which will only benefit them.

Disclaimer

We are neither holding, nor planning to open any position. We are merely presenting our opinion, intended to be used in the WhoTrades Investment Strategy Contest.