Harley-Davidson’s Stock To Gain As Company Continues Recovery?

Harley-Davidson’s stock (NYSE: HOG), has declined post mid-May after seeing a 52-week high of $52. As per Trefis analysis Harley-Davidson’s valuation is $56 per share compared to the current price of $38. We believe the company continues on the recovery path after an adverse year in 2020, primarily due to the coronavirus pandemic. In the first half of the year the company recorded revenue of $2.96 billion, up 37% compared to the same period of the previous year. The recovery is led by the U.S. geography as the company sold 81K motorcycles in the first six months in the U.S. compared to 58.8K motorcycles in the same period of the previous year. Overall the company sold 109.5K motorcycles in the first half of 2021, up 18%. We expect the company to continue its recovery journey with its hardwire strategy after executing the rewire strategy of critical overhaul of the business. The rewire strategy is expected to deliver ongoing gross cash savings of approximately $115 million starting in 2021. The Hardwire strategy is a five-year strategic plan to deliver long-term growth and shareholder value.

Overall we expect Harley-Davidson‘s revenues to be $5.3 billion for 2021 while net income is expected to be $215 million, increasing the EPS for the year to $1.40. For 2022, we expect revenue to improve to $5.9 billion taking its net income to $329 million. This will improve its EPS figure to $2.14 in 2022, which coupled with the P/E multiple of 26x will lead to Harley-Davidson’s valuation of $56, which is nearly 46% above the current market price.

[Updated 07/06/2021] Has Harley-Davidson’s Stock Already Priced In Recovery?

Harley-Davidson’s stock (NYSE: HOG), has gained 27% – moving from about $37 to $47 since the end of 2020. The price rose in 2021 as the company started recovering after it was hit hard due to the pandemic in 2020. In 2020 sales volume fell by 32% for the year, which caused revenue to fall by 25% y-o-y to $4.1 billion. In Q1 2021, recovery was seen in its main market i.e. North America as sales volume increased by 30% y-o-y for the region. Overall the sales volume increased by 9% y-o-y for the quarter. The recovery in volume led to revenue growth as the company posted revenue of $1.4 billion, up 10% y-o-y. At the current price of $47 we believe Harley-Davidson’s stock is in line with its potential. 

Harley-Davidson’s revenues have fallen by 27% from $5.7 billion in 2018 to $4.1 billion in 2020. In the same period, the net income margin has fallen to 0.03% in 2020 from 9.3% in 2018 as the company suffered due to waning demand of heavy motorcycles and the Covid pandemic. The shares outstanding decreased during the same period which partially offset the RPS fall. Harley’s P/S was around 0.9x at the end of 2018 and has increased continuously. It reached 1.4x at the end of 2020 and has reached 1.7x currently.

We expect the company to continue on its revival path post the pandemic and sales volume to recover across regions. This would lead Harley-Davidson’s revenue to rise by 31% to $5.3 billion for 2021. Further, its net income is likely to increase to $215 million, increasing its EPS figure to $1.40 in 2021, which coupled with the P/E multiple of 34.3x will lead to Harley-Davidson’s valuation of $48, which is in line with the current market price.

While IBM stock is likely to move higher in the near term, there are several peers in its sector that look like a Better Bet Than HOG Stock. Also, Harley-Davidson Peer Comparisons summarizes how the company fares against peers on metrics that matter.

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