What Will Be The Impact On Harley’s Valuation If International Motorcycle Sales Increase By More Than Expected?

+4.85%
Upside
40.73
Market
42.71
Trefis
HOG: Harley-Davidson logo
HOG
Harley-Davidson

Harley-Davidson (NYSE:HOG) is heavily dependent on the domestic market, with two-thirds of its motorcycles shipped in the U.S. itself. However, with slowing activity in the home market, the company has looked to ramp up international growth to boost its financials. Markets outside the U.S. form approximately 30% of Harley’s top line, which remained flat through the first three quarters of 2016 (includes only motorcycles and related products revenue). While Harley’s retail sales declined 1.9% year-over-year through September, international sales were up 3.3% year-over-year. Retail sales grew 6.6% in EMEA region through Q3, and by 6.3% in Canada.

The company is focusing on higher international sales growth than U.S. growth. Harley added 9 international dealerships in Q3 to increase its reach and availability, after adding 11 in the first half of the year. Their aim is to add 150-200 international dealerships by 2020.

However, even if we consider international growth to come thick and fast, by more than we currently estimate, there will be only a 4% upside to our current price estimate for Harley-Davidson. Trefis currently estimates Europe’s heavyweight motorcycle market size (601+ cc) to grow at 3.4% CAGR, and its market share to grow from an estimated 10.6% in 2016 to 11% in 2021. On the other hand, we estimate the rest of the world motorcycle sales to grow at a CAGR of 5%.

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Although international sales are very important for Harley-Davidson, it can be seen that the domestic market is the most important division for the company, since a large fluctuation in international sales causes only a slight upside/downside on the company’s overall value.

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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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