Harley-Davidson: Time To Buy The Dip? (Rating Upgrade)

Core Viewpoint - The article revises the outlook on Harley-Davidson, indicating a shift in stance due to changes in systematic and idiosyncratic variables since the last coverage in June 2021, where the stock was deemed to have outperformed its fundamental capacity [12][13]. Recent Performance - Harley-Davidson's stock has faced challenges over the past three years, primarily due to inconsistent demand for durable goods and questionable valuation multiples at the time of the last coverage [13][15]. - The company reported a revenue beat of $128.56 million and an earnings-per-share beat of 18 cents in its latest earnings report for Q1 [16]. Financial Metrics - Harley's financing and insurance unit (HDFS) grew by 12% year-over-year, achieving an operating profit margin of 21.7% [18]. - Motorcycle and parts sales decreased by 5% year-over-year, with an operating profit margin of 16.2% [19]. - LiveWire, the electric motorcycle segment, experienced a significant decline of 39%, resulting in an operating loss of $29 million [19]. Market Dynamics - Consumer confidence is low globally, but the company anticipates a recovery in motorcycle sales as consumer confidence improves, likely tied to a drop in interest rates [20]. - Harley-Davidson's credit and insurance departments are expected to maintain sustainable growth throughout the economic cycle [20]. Inventory and Market Share - Harley-Davidson's motorcycle profitability decreased to 16.2% in Q1, but the brand's strong positioning is expected to sustain its inflation pass-through capabilities [22]. - The company has increased its market share in the U.S. by 400 basis points, particularly in the touring motorcycle segment [23]. Valuation and Shareholder Returns - A price target of $54.94 per share is set for December 2024, indicating that the stock is currently undervalued [27]. - Harley-Davidson's forward dividend yield is 2.05%, with a low payout ratio of 14.83%, suggesting potential for future dividend increases [31]. Risk Factors - Concerns remain regarding the performance of LiveWire, as the electric motorcycle segment has not met expectations despite industry growth forecasts [33]. - The company faces challenges in expanding its market share in Europe and Asia, which may lead to inefficient capital expenditures [33].