What Will Be The Impact On Harley-Davidson’s Valuation If Motorcycle Sales In The US Accelerate?

by Trefis Team
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Harley-Davidson‘s (NYSE:HOG) US shipments declined 2% year-over-year in 2015, as stiff competition hurt the motorcycle maker. The stronger U.S. dollar gave pricing advantage to European and Japanese manufacturers. The U.S. is an important market for the company, since it forms two-thirds of the net shipments, and 36% of the valuation of the company, as per our estimates. We currently expect the country’s heavyweight motorcycle market to grow at 4% CAGR through 2020, and Harley’s market share to drop from 52% in 2015, to 48% in 2020.

However, the situation could change going forward, and the pricing advantage to Harley’s competitors could only be a temporary headwind, especially as the Milwaukee-based manufacturer hasn’t gone for aggressive discounting to keep up with competition. In addition, lighter and cheaper bikes such as the Street 500 and Street 750, could significantly increase volume sales. The U.S. heavyweight motorcycle market could grow at a CAGR of 6% through 2020, and Harley’s share decline could stall, especially due to the smaller bikes and if foreign currencies start gaining momentum. The company’s U.S. market share could reach 51% in 2020, which is still lower than 2015’s figure of 51.9%. Moreover, with foreign currencies gaining momentum, Harley will be allowed to raise its model prices, at least in line with inflation. In effect, higher revenues and more volume sales would also lift the gross profit, and also impact the margin since Harley-Davidson has a considerable amount of fixed costs.

In this scenario, there could be a 10% increase in Harley-Davidson’s equity valuation, as per our estimates.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Harley-Davidson

 

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