Harley-Davidson: Buy This American Icon For Cheap

Jul.29.14 | About: Harley-Davidson, Inc. (HOG)

Summary

Shares sold off nearly 5% on revised 2014 guidance.

The leading motorcycle company in the U.S. is offering investors the best buying opportunity in a long-time.

It’s positioned itself nicely for future growth related to millennials and baby boomers.

Shares of Harley-Davidson (NYSE:HOG) took a tumble after cutting its fiscal 2014 outlook. The company noted that sales suffered from the harsh winter. As a result, it lowered its full year shipment of motorcycles expectations; now expecting a 3.5% to 5.5% year over year increase, versus the previously expected 7% to 9% increase.

Despite the near-term weakness related to the weather and weak European economy, the long-term growth story is still intact. Shares are down 10% over the last month and could be offering an attractive entry point.

Still an iconic investment

Harley Davidson is trading at a P/E ratio of 16.5. That's right at the lowest P/E we've seen in the last twelve months. Meanwhile, its historical average P/E ratio is closer to 19.

When you stack up the American icon against Polaris (NYSE:PII) and Arctic Cat (NASDAQ:ACAT), Harley-Davidson is easily one of the best bets in the industry. Harley-Davidson offers the best dividend of the three, yielding 1.7%, while Polaris and Arctic Cat offer a yield of 1.3%. Harley-Davidson also has the highest profit margin.

Arctic has grossly underperformed its peers, and the broader market, down 32.5% year to date. Arctic's main products are snowmobiles and ATVs.

However, it could be an interesting deep value stock. It has no debt and a return on investment that's over 20% for the trailing twelve months. It trades at the lowest P/E ratio of the three, currently at 13, and its P/E to growth rate (PEG) is the lowest, at 0.8.

A tale of two motorcycle makers

One of Harley-Davidson's top rivals, Polaris, managed to beat June-ended quarterly expectations by 2%. But Harley-Davidson also beat on the June-ended quarter, beating by 11%; however, its shares still tumbled.

That's because Polaris upped its outlook for the rest of the year, something that Harley-Davidson didn't do. Polaris not only offers motorcycles, but also sells ATVs and snowmobiles.

Over the last week, Harley-Davidson's average EPS estimate for this year has been reduced from $3.94 to $3.82. Polaris' expected earnings have been upped by $0.08 to $6.57 for full year 2014.

As mentioned, despite the downward revision, Harley-Davidson's second quarter results were good. It shipped over 92,000 motorcycles in the quarter, which was a 9% year over year increase. Harley's market share of heavyweight motorcycles remains at an impressive 50%.

Preparing for the future of motorcycles

Harley-Davidson is looking to tap into new markets for driving future growth. This includes the younger and older generations. Its 'Project Rushmore' strategy includes focusing on models tailored toward the younger generation living in urban cities.

Meanwhile, it's also testing its LiveWire model, which is an electric motorcycle. It's targeting the rapidly aging baby boomers with three-wheel models. These will be easier to mount and balance than two-wheelers.

If there's one hang up, it'll be the fact that Harley-Davidson is highly dependent on the broader economy. However, by all accounts, the economy is gaining strength day by day. Unemployment is at the lowest levels in six years and the Fed could raise interest rates as soon as next year -- due to the robustness of the economy.

Bottom line

Investors haven't seen a buying opportunity in Harley-Davidson like this in a long time. And with the improving economy, the company is poised to excel going forward. For investors looking for a solid play on consumer discretionary stocks, Harley-Davidson is worth a closer look.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.