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Why Analysts Think Harley-Davidson's 3Q Earnings Will Remain Weak

PART:
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Part 7
Why Analysts Think Harley-Davidson's 3Q Earnings Will Remain Weak PART 7 OF 8

Understanding HOG’s Valuation Multiples before 3Q17 Earnings

HOG’s EV-to-EBITDA

As of October 10, 2017, Harley-Davidson’s forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple was 11.9x. This forward valuation multiple was based on the company’s EBITDA estimates for the next 12 months. The multiple was significantly higher than the EV-to-EBITDA multiple of Japanese auto giant Honda (HMC), which was at 6.9x.

Understanding HOG&#8217;s Valuation Multiples before 3Q17 Earnings

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Forward PE multiple

Harley’s forward PE (price-to-earnings) multiple for the next 12 months was at 12.7x, also much higher than Honda’s 10.2x. Interestingly, Harley-Davidson’s valuation multiples typically are higher than its competitors. The company’s ability to maintain the largest global market share in the premium category of the heavyweight motorcycle segment could be one of the key reasons for HOG’s higher valuation.

Ferrari’s (RACE) valuation multiples also trade much higher than other auto industry (XLY) players like General Motors (GM) and Ford (F). Ferrari’s strong presence in the premium luxury car segment makes it stand out from other auto companies.

Key points to note

Currently, HOG is going through a tough phase and is struggling to protect its margins from its international market segments. Other factors including high competition from European and Japanese motorcycle manufacturers continue to pose a risk to Harley’s supremacy. A continuation of these risk factors could increase the company’s risk profile and lower its valuation multiples.

A continuation of HOG’s flat home market sales could also affect valuation multiples by lowering estimates for its future earnings. Continue to the next part where we’ll take a look at some key resistance and support levels in Harley-Davidson’s stock before its 3Q17 earnings event.

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