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Why Did Harley-Davidson Rise ~20% on July 1?

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Jul. 4 2016, Published 3:42 p.m. ET

Price movement of Harley-Davidson

Harley-Davidson (HOG) has a market capitalization of $8.2 billion. It rose by 19.8% to close at $54.25 per share on July 1, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 24.6%, 17.6%, and 21.6%, respectively, on the same day.

HOG is trading 20.9% above its 20-day moving average, 19.0% above its 50-day moving average, and 17.6% above its 200-day moving average.

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Related ETFs and peers

The Vanguard Mid-Cap ETF (VO) invests 0.37% of its holdings in Harley-Davidson. VO tracks the CRSP US Mid-Cap Index, a diversified index of mid-cap US companies. VO’s YTD price movement was 3.8% on July 1.

The Vanguard Mid-Cap Growth ETF (VOT) invests 0.37% of its holdings in Harley-Davidson. The ETF tracks a market cap–weighted index of mid-cap growth companies selected by the Center for Research in Security Prices.

The market capitalizations of Harley-Davidson’s competitors are as follows:

  • Polaris Industries (PII)—$5.3 billion
  • Textron (TXT)—$9.8 billion

Harley-Davidson rose on rumors

Harley-Davidson rose by ~19.8% on July 1, 2016, after rumors that Kohlberg Kravis Roberts (or KKR), a private-equity company, had sent a bid of $65 per share to acquire Harley-Davidson. The same speculation happened in 2010, but the deal didn’t take place.

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Performance of Harley-Davidson in 1Q16

Harley-Davidson reported 1Q16 Motorcycles and Related Products revenue of ~$1.6 billion, a rise of 4.4% compared to the segment’s revenue of ~$1.5 billion in 1Q15.

The company’s retail sales in the United States and Latin America fell by 0.5% and 26.5%, respectively. Retail sales in Canada, EMEA (Europe, the Middle East, and Africa), and the Asia-Pacific region rose by 16.3%, 8.8%, and 6.6%, respectively, in 1Q16 compared to 1Q15.

Harley-Davidson‘s financial services revenue rose to $173.4 million in 1Q16, a rise of 6.8% compared to 1Q15. Its net income fell to $250.5 million, and its EPS (earnings per share) rose to $1.36 in 1Q16, compared to net income and EPS of $269.9 million and $1.27, respectively, in 1Q15.

Harley-Davidson’s cash and cash equivalents and inventories fell by 3.9% and 5.5%, respectively. Its finance receivables rose by 24.9% in fiscal 1Q16 compared to fiscal 4Q15. Its current ratio and long-term debt-to-equity ratio rose to 1.7x and 2.9x, respectively, in 1Q16, compared to 1.5x and 2.6x, respectively, in 4Q15.

Projections

Harley-Davidson has made the following projections for 2016:

  • motorcycle shipments in the range of 269,000–274,000, a rise of ~1%–3% compared to 2015
  • operating margin in the range of 16%–17% in the Motorcycles segment
  • capital expenditure in the range of $255 million–$275 million
  • an effective tax rate of ~34.5%

The company has made the following projections for 2Q16:

  • motorcycle shipments in the range of 83,000–88,000

In the next part, we’ll take a look at Thor Industries.

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