VALUATION HIGHLIGHTS

1. Motorcycles and Related Products constitute 54% of the Trefis price estimate for Harley-Davidson's stock.
2. Financial Services constitute 41% of the Trefis price estimate for Harley-Davidson's stock.

WHAT HAS CHANGED?

1. Latest Earnings

Harley-Davidson posted a mixed set of Q4 2023 results. While earnings beat estimates, coming in at $0.18 per share, revenue stood at $791.65 million, declining -14% versus last year.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

• Total Worldwide Shipments and Average Revenue Per Motorcycle:

Harley Davidson's total worldwide shipments declined from 213k in 2018 to around 194k in 2022, driven largely by the impact of the Covid-19 pandemic and saturation in the company's core U.S. market. However, with Covid-19 easing, and the company focusing on bringing in new customers, sales could recover to over 212k units by the end of 2028. However, if sales surpass our estimates and rise to over 250k, there could be a 10% upside to our price estimate.
Harley-Davidson's average revenue per motorcycle increased from around $16,000 in 2019 to about $19,600 in 2022. Going forward, we expect it to increase over our forecast period to about $21,400. However, if the company can generate higher revenue per motorcycle of about $24,000, there can be a 10% upside to our price estimate.

BUSINESS SUMMARY

Harley-Davidson is a manufacturer of heavyweight (601cc+) cruiser and touring motorcycles. After the U.S., the most significant markets are Europe and Japan. Harley-Davidson is known to engage its customers in motorcycling-related community activities. The company sponsored the Harley Owners Group (HOG), the largest riding club in the world, with over 1 million members. Such initiatives boost motorcycle accessories and merchandise sales, significantly contributing to the overall revenue. Like most automobile manufacturers, the company has a financial services division called Harley-Davidson Financial Services (HDFS) that provides retail loans to customers to buy new and used motorcycles, offers wholesale loans to dealers to help them finance their operations, and also acts as an agent to provide motorcycle related insurance to customers.

SOURCES OF VALUE

Despite a shrinking market over the past few years, motorcycle sales are still the largest source of value for Harley-Davidson

Harley's motorcycle division is still its most valuable segment, given the ongoing recovery in motorcycle sales following Covid-19 and an increasing focus on higher-value motorcycles such as Touring, large Cruisers, and Trikes. Gross margins for the segment are also relatively thick by automotive industry standards, standing at around 31% for 2022.

KEY TRENDS

1. The Hardwire strategic plan

In 2021, Harley unveiled a five-year strategic plan it called "The Hardwire." Under the plan, the company is targeting low double-digit EPS growth through 2025, mid-single-digit revenue growth in the motorcycles segment, and double-digit growth in operating income for the financial services segment. The company also intends to grow in presence in the Touring, large Cruiser, and Trike segments, which are the most profitable segments of the motorcycle market.

2. Increase in non-traditional riders taking up motorcycling

The U.S.'s core customer base for heavyweight motorcycles consists of middle-aged Caucasian males. However, with an aging population of baby boomers in the domestic market and the rising popularity of affordable lighter motorcycles among millennial customers, the heavyweight motorcycle market might see negligible growth in the coming years. Harley-Davidson hopes to meet the deficit created by its declining core customer base with sales to its outreach customers.

As the core customer base ages, the company is focusing on building a new generation of Harley riders. The long-term strategy through 2027 focuses on building 2 million new Harley-Davidson riders in the U.S.