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Summary

  • Harley-Davidson shares are about 9% above their 52-week low.
  • Harley-Davidson is the most iconic motorcycle manufacturer in the U.S.
  • The stock is a bargain, sitting at a P/E of 15.83.

Whether it's a mid-life crisis, a bullet point on the bucket list, or just an urge to feel awesome, many people tend to have thoughts of getting a Harley-Davidson (NYSE:HOG). Even if a person does not have the urge to buy a Harley, he or she must have at least heard of Harley-Davidson. The Harley-Davidson motorcycle is an iconic symbol of American culture, and with the shares' recent sell-off, anyone can now buy this American dream for less. I wouldn't give up on this American motorcycle king just yet given that Harley also has a majority of the market share for heavyweight street motorcycles.

(click to enlarge)

What was the reason for the mounting sell-off taking place since mid-July, causing a break in support? Harley lowered their guidance on shipments for the year. Harley expects to ship 3.3% fewer bikes than originally intended. However, we must add that they beat earnings estimates for the second quarter, and had earnings growth at around 33.9% vs. with the second quarter of 2013. It's still an impressive feat from Harley-Davidson regardless of lowered shipment expectations.

Lowered earnings expectations by analysts may give Harley more of an advantage to beat bottom-line estimates. We can conclude that from the performance given by Harley, they are an expectations beater.

Date

Qtr

EPS

Cons.

Surprise

Revs

Cons.

EPS

REV

7/22/2014

Q214

$1.62

$1.46

$0.16

$1.83B

$1.84B

BEAT

MISS

4/22/2014

Q114

$1.21

$1.08

$0.13

$1.57B

$1.53B

BEAT

BEAT

1/30/2014

Q413

$0.34

$0.34

$0.00

$1.03B

$1.04B

MEET

MISS

10/22/2013

Q313

$0.73

$0.73

$0.00

$1.34B

$1.17B

MEET

BEAT

7/25/2013

Q213

$1.21

$1.18

$0.03

$1.79B

$1.63B

BEAT

BEAT

4/25/2013

Q113

$0.99

$0.99

$0.00

$1.57B

$1.46B

MEET

BEAT

1/29/2013

Q412

$0.31

$0.32

($0.01)

$1.17M

$976.88M

MISS

MISS

10/23/2012

Q312

$0.59

$0.58

$0.01

$1.25B

$1.12B

BEAT

BEAT

Out of the last eight quarters, Harley has had positive surprises 50% of the time and met 3/8ths, or 37.5%, of the time. This equates to HOG either meeting or exceeding 7/8ths, or 87.5%, of the time. Now if that doesn't show you that Harley can beat expectations, then maybe you should go for a ride on one.

I also want to mention that Harley-Davidson recently released an electric bike. This is quite innovative as the company hopes to break into a market that's untouched by many motorcycle manufacturers. This is an especially good sign that Harley understands it can't be gas and power all the time, and that to fit in with future generations they may need to fine tune their approach. That's especially true given that the baby boomer generation -- best known for their Harley addictions -- are now retiring and settling down quietly. Zero to 60 in less than four seconds? That sounds pretty good to me.

Clearly, almost everyone has heard of Tesla (NASDAQ:TSLA) and their electric car. What about Harley and their possible electric bike? Once again, although there is a small, if any, market for electric road motorcycles -- or dirt bikes for that matter -- Harley stands a good chance of creating demand for such a potential market.

Competition

Here is a quick look at Harley-Davidson in comparison to their main competitor, Polaris (NYSE:PII). We can see that HOG has definitely been dominating in revenue growth and simple valuations given P/S and P/E relative to a common PEG of 1.12.

Information

PII

HOG

Market Cap:

9.69B

13.50B

Employees:

5,400

6,400

Qtrly Rev Growth (yoy):

0.2

0.12

Revenue ((NYSE:TTM):

4.14B

6.26B

Gross Margin:

0.31

0.39

EBITDA:

742.11M

1.50B

Operating Margin:

0.15

0.21

Net Income:

403.41M

858.20M

EPS:

5.47

3.49

P/E:

26.82

17.74

PEG (5 yr expected):

1.12

1.12

P/S:

2.35

2.2

Risks

With the aging baby boomer population, Harley will have to come up with strategies (such as their electric motorcycle) to attract the younger population. The average age of a Harley-Davidson motorcycle owner has decreased to 47 years old in 2012. This infers that they were be born during the first year of Generation X (1965-85). In addition to this, it would be beneficial to note that Generation Y (1985-2000s) won't reach an ideal Harley-Davidson user-age until the mid 2030s. Harley-Davidson's top line may face pressure as baby boomers retire and younger generations step into the motorcycle market. Harley can, however, overcome this pressure if they start putting more emphasis on marketing to a younger generation.

Industry

Recreational vehicles are known as a luxury good, and with that consumers will need excess disposable discretionary income in order to be influenced to purchase recreational vehicles like a Harley. With the economy improving, and loans being relatively cheap for the next seven to eight months (investors expect rate hikes by the Fed in April), buyers are going to start taking advantage of low interest rates for the time being and purchase these luxury goods loans get more expensive. Once rate hikes begin, recreational vehicles could see declines in demand and revenue as it becomes more expensive to purchase these luxurious goods.

Like I stated earlier, with the baby boomer population moving away from the market for recreational vehicles as they begin to age, Generation X and Generation Y are left with the task of increasing demand again for recreational vehicles as they age.

Conclusion

There are people out their who are beginning to doubt Harley-Davidson because of the shipment projections for the year, but if Harley can surprise investors a majority of the time, they could probably do it again this year.

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. The author has no business relationship with any company whose stock is mentioned in this article.

Source: Harley-Davidson: Hop On This Hog Before It's Too Late