Longbow Research Downgrades Harley-Davidson to ‘Underperform’



Price movement

Harley-Davidson (HOG) has a market cap of $9.5 billion. It fell by 0.46% to close at $52.33 per share on August 29, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -3.0%, -1.1%, and 17.3%, respectively, on the same day. HOG is trading 2.0% below its 20-day moving average, 4.3% above its 50-day moving average, and 13.2% 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 mid-cap US companies. VO’s YTD price movement was 9.1% on August 29.

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 capitalization of the US equity market.

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

  • Polaris Industries (PII) — $5.8 billion
  • Textron (TXT) — $11.1 billion

Harley-Davidson’s rating

Longbow Research has downgraded Harley-Davidson’s rating to “underperform” from “neutral” and set the stock price target at $40 per share.

Article continues below advertisement

Performance in 2Q16

Harley-Davidson reported 2Q16 motorcycles and related products revenue of $1.67 billion, a rise of 1.2% from the $1.65 billion reported in 2Q15. The company’s retail sales in the United States and Latin America fell by 5.2% and 5.0%, respectively, from 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, between 2Q15 and 2Q16.

Harley-Davidson’s financial services revenue was $191.0 million in 2Q16, a rise of 10.0% from the same period last year. The company’s gross profit of motorcycles and related products and its operating income fell by 7.2% and 10.9%, respectively, between 2Q15 and 2Q16.

Its net income fell to $280.4 million and its EPS (earnings per share) rose to $1.55 in 1Q16, compared with $299.8 million and $1.44, respectively, in 1Q15. Harley-Davidson’s cash and cash equivalents and finance receivables both rose by 19.7%, respectively, and its inventories fell by 36.6% between 4Q15 and 1Q16. Its current ratio rose to 1.7x in 1Q16 from 1.4x in 4Q15. It reported a long-term debt-to-equity ratio of 2.6x in 4Q15 and 1Q16.


The company made the following projections for 2016:

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

The company made the following projections for 3Q16:

  • motorcycle shipments of 49,000–54,000.

In the next part of this series, we’ll discuss Lululemon Athletica (LULU).


More From Market Realist