One company that has seen its stock price bubbling lately is Harley-Davidson (NYSE:HOG). Shares of the motorcycle maker have gained more than 20% in the last three months, especially after the company announced its decision to launch eight new models this year as part of the 2014 lineup. This is the biggest product revamp in its 110-year-old history. In addition to selling the iconic motorcycles, Harley-Davidson also offers its brand merchandise and provides wholesale/retail financing and insurance programs to dealers and customers.
The reviews of the new models have been generally good. Besides enhanced power, improved styling and better ergonomics, there has a been a lot of technological upgrades to the refreshed models. The new bikes feature touchscreen, Bluetooth connectivity, GPS and voice recognition technology, among others [Harley-Davidson dealer: 2014 lineup brings ‘revolutionary changes’, August 23, 2013, bizjournals.com]. The model upgrades will no doubt help lift the pricing. However, how many more motorcycles the company ends up selling remains up for debate.
Harley’s American numbers have rebounded post the 2008 crash, but it will be difficult for the company to clock the kind of numbers it once boasted. This is mainly because of changing demographics that don’t suit the heavyweight motorcycle market. Most of the customers are men in their 40s and 50s, a segment of the population which is declining.
The sale of U.S. heavyweight motorcycle peaked to 543,000 units in 2006, but crashed to 260,000 units by 2010, exacerbated by the economic crisis. Although the heavyweight motorcycle market has rebounded in the last couple of years, it is still a far cry from the figure witnessed back in 2006. In 2012, the market size stood at 282,000 units.
Even though Harley-Davidson has done well to gain market share, its sales have tanked from 273,000 back in 2006 to about 160,000 last year. Until the company is able to penetrate further demographics, its sales could soon plateau. Harley has been trying to target other demographic groups such as women and men outside the aforementioned age bracket but with mixed success.
More Women Customers?
Targeting women probably remains the biggest opportunity for the company given the size of the potential customer base. Concerns about women’s ability to handle the heavy motorcycles along with the macho image that comes with owning a Harley-Davidson have generally kept women away.
But Harley is taking measures to address these issues. The company’s organizing rallies aimed specifically at women. Dealers are being trained to interact with women customers more efficiently and to take the demographic more seriously. Harley’s also encouraging more women to take up rider training classes [In Quest to Expand Market, Harley-Davidson Reaches Out to Women, September 12, 2013, theledger.com]. All of this should help the company in the long run. But unless there is solid proof of a definite shift in the company’s customer base, it’s hard to say how much of an impact these moves will have on the company’s operations.
We are cautious on the stock at the moment. We have a $59 price estimate for Harley-Davidson, which is about 10% lower than the current market price.
Disclosure: No positions