uploads/2016/08/hog-pm.png

Barclays Downgrades Harley-Davidson to ‘Underweight’

By

Updated

Price movement

Harley-Davidson (HOG) has a market cap of $9.3 billion. It fell by 2.4% to close at $51.66 per share on August 1, 2016.

The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 3.3%, 14.0%, and 15.8%, respectively, on the same day. HOG is trading 4.2% above its 20-day moving average, 10.4% above its 50-day moving average, and 12.9% above its 200-day moving average.

Article continues below advertisement

Related ETFs and peers

The Vanguard Mid-Cap ETF (VO) invests 0.27% of its holdings in Harley-Davidson. VO tracks the CRSP US Mid-Cap Index, a diversified index of US mid-cap companies. VO’s YTD price movement was 7.8% on August 1.

The Vanguard Large-Cap ETF (VV) invests 0.04% of its holdings in Harley-Davidson. The ETF tracks a market cap–weighted index that covers 85% of the market cap of the US equity market.

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

  • Polaris Industries (PII)—$5.9 billion
  • Textron (TXT)—$10.5 billion

Harley-Davidson’s rating

Barclays has downgraded Harley-Davidson’s rating to “underweight” from “equal-weight.” It has set the stock’s price target at $45.0 per share.

BMO Capital has upgraded Harley-Davidson’s rating to “outperform” from “market perform.” It has set the stock’s price target at $66.0 per share.

TheSteet ratings has rated the stock as a “hold” with a score of C+.

On July 29, 2016, RBC Capital Markets downgraded Harley-Davidson’s rating to “underperform” from “sector perform.” It set the stock’s price target at $43.0 per share.

Wells Fargo has downgraded Harley-Davidson’s rating to “market perform” from “outperform.”

Article continues below advertisement

Performance of Harley-Davidson in 2Q16

Harley-Davidson reported 2Q16 motorcycles and related products revenue of $1.67 billion, a rise of 1.2% compared to motorcycles and related products revenue of $1.65 billion in 2Q15. The company’s retail sales in the United States and Latin America fell by 5.2% and 5.0%, respectively, compared to 2Q15. Its retail sales in Canada, EMEA (Europe, the Middle East, and Africa), and the Asia-Pacific region rose by 2.0%, 8.2%, and 0.75%, respectively, in 2Q16 compared to 2Q15.

HOG’s financial services revenue was $191.0 million in 2Q16, a rise of 10.0% compared to the prior year’s period. The company’s gross profit of motorcycles and related products and its operating income fell by 7.2% and 10.9%, respectively, in 2Q16 compared to the prior year’s period.

HOG’s net income fell to $280.4 million, and its EPS (earnings per share) rose to $1.55 in 1Q16, compared to its net income and EPS of $299.8 million and $1.44, respectively, in 1Q15.

Harley-Davidson’s cash and cash equivalents and finance receivables rose by 19.7% and 19.7%, respectively, and its inventories fell by 36.6% in 1Q16 compared to 4Q15. Its current ratio rose to 1.7x in 1Q16 compared to 1.4x in 4Q15. It reported a long-term debt-to-equity ratio of 2.6x in 1Q16 and 4Q15.

Projections

The company has made the following projections for 2016 and 3Q16:

2016

  • motorcycle shipments in the range of 264,000—269,000, a rise of ~-1% to 1% compared to 2015
  • an operating margin in the range of ~15%–16% for the motorcycles segment
  • capital expenditure in the range of $255 million–$275 million
  • an effective tax rate of ~33%

3Q16

  • motorcycle shipments in the range of 49,000–54,000.

In the next part of this series, we’ll discuss Trinseo (TSE).

Advertisement

More From Market Realist