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Harley-Davidson Is A Buy

Mar. 06, 2018 11:42 AM ETHarley-Davidson, Inc. (HOG)7 Comments
Patrick Doyle profile picture
Patrick Doyle


  • The shares of Harley-Davidson trade at a ludicrously low multiple both relative to both the company's own history and to the market.
  • In my view, investors do best when they buy quality when it's on sale, and Harley-Davidson is quality on sale.
  • In my view, investors would be wise to collect the well covered dividend while they wait for price and value to inevitably meet.

Shares of Harley-Davidson Inc. (NYSE:HOG) are down about 22% over the past year. That, and the fact that riding season is fast approaching (should be here in Toronto by about mid August) put the company on my radar. While I admit that I have a very strong pro-Triumph bias when it comes to actually riding bikes, the shares of Harley-Davidson are good value at these levels for a host of reasons.

I’ll go through my reasoning below by focusing in on the financial history here, by attempting to model future price based on the dividend history, and by looking at the stock itself. Things have obviously slowed for this iconic brand, but the shares trade as though the business has absolutely fallen off a cliff. I think investors can take advantage of the market’s current myopia.

Financial History

A quick review of the financial history suggests that Harley-Davidson has had a bumpy ride over the past few years. Forgive the pun. Last time, I promise. Anyway, since 2013, earnings per share have declined at a CAGR of about 1.1%, in spite of an aggressive share buyback program. At the same time, though, free cash flow per share (a more relevant measure than EPS in my view) is up at a CAGR of about 6% since 2013. As most of us know, earnings may be affected by non-cash charges, like the $53.1 million write-down of deferred tax assets in the final quarter of 2017.

Turning very briefly to a discussion of future obligations, the company has grown long-term debt at a CAGR of about 6% over the past five years, which is obviously not sustainable. What I find problematic about the debt level is the fact that most of it (83%) is due before 2021, which presents some refinancing risk to the company. That said, the weighted average cost of

This article was written by

Patrick Doyle profile picture
I'm a quant investment newsletter writer who marries fundamental analysis with the latest research in momentum. Over the past few years, I’ve developed a piece of software that helps me track the level of optimism and pessimism embedded in stock price. I seek to challenge the assumptions embedded in price by profitably exploiting the disconnect between what the market thinks and what is a likely outcome. I invest in those companies that have a greater than average chance of giving us all a surprise in the next few months.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in HOG over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (7)

just catching up on hog... is it still a buy now in June?
Well, the EU has specifically targeted tariffs on HD products, should Trump go through with his tariffs. Now that the adults left the Whitehouse, the tariffs will likely go through, and the HOG will get slaughterd=SHORT.
I don't short, however, I do agree.
Patrick Doyle profile picture
LOL! Good point. I was wondering about that, but yeah I can understand why people would read that as "Trump" as he's certainly top of mind.

For the record, though, VERY pro Triumph. Far less pro Trump.
If you are pro-Trump then how do you feel about what he's being doing with tariffs which seem expressly designed to hurt companies like HOG?
Patrick Doyle profile picture
Hi jonk
I wouldn't call myself "Pro-Trump" at all, actually. I think the idea of steel and aluminium tariffs are idiotic.
My view (hope?!) is that this is short term noise.
Lol upon initial review I made the same mistake in thinking he said Pro Trump he actually said Pro Triumph referring to the Rival motorcycle maker
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