Why a Majority of Analysts Are Neutral on Harley-Davidson Stock
Underperforming in 2017
Harley-Davidson (HOG) is the world’s most popular heavyweight motorcycle maker. Since its beginning, HOG has maintained its own premium space in the crowded motorcycle market. In 2016, the stock impressed investors by delivering 28.0% positive returns, which was much better than other automakers and the broader market (SPY).
However, HOG has been facing several operational challenges in 2017, which has hurt the stock. As of September 25, 2017, Harley-Davidson stock has fallen 16.1% year-to-date. That performance was much worse than other auto industry (XLY) players such as Honda (HMC), General Motors (GM), and Ford (F).
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Analysts are neutral on Harley-Davidson stock
According to data compiled by Reuters, 77.0% of analysts covering Harley-Davidson stock have given it a “hold” recommendation. Only 18.0% have recommended a “buy,” and the remaining 5.0% have maintained a bearish view, giving it a “sell” rating.
As of September 25, 2017, Harley-Davidson’s consensus 12-month target price is $51. That suggests an upside potential of 4.2% from its market price of $48.95.
Analysts’ consensus target level for Harley-Davidson stock has fallen sharply in the last couple of months from $58.04 to $51.
Possible reason for mixed sentiments
In 2Q17, HOG reported global revenues of ~$1.8 billion, which reflected a YoY (year-over-year) fall of 5.2%. In the previous quarter, its revenues fell 14.2% YoY. Its second-quarter gross margins were also flat at 36.5% compared to 36.4% the previous year.
In its 2Q17 earnings release, HOG’s management revised the company’s shipment guidance downward. Now management expects HOG’s 2017 global shipments to be 6.0%–8.0% lower than its 2016 shipments. Management also expects a 1.0% fall in its 2017 operating margin compared to the previous year. The dismal 2017 outlook could be the primary reason analysts are maintaining a cautious view on HOG stock at the end of 3Q17.
In the next part, we’ll compare automakers’ valuation multiples as 3Q17 comes to an end.