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Wells Fargo and RBC Capital Downgrade Harley-Davidson

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Price movement

Harley-Davidson (HOG) has a market capitalization of $9.6 billion. It rose by 3.7% to close at $52.92 per share on July 29, 2016.

The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 5.6%, 19.4%, and 18.6%, respectively, on the same day. HOG is trading 7.5% above its 20-day moving average, 13.5% above its 50-day moving average, and 15.6% above its 200-day moving average.

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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 8.3% on July 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 capitalizations of Harley-Davidson’s competitors are as follows:

  • Polaris Industries (PII)—$6.4 billion
  • Textron (TXT)—$10.6 billion

Harley-Davidson’s rating

RBC Capital Markets has downgraded Harley-Davidson’s rating to an “underperform” from a “sector perform.” It also set the stock’s price target at $43.0 per share.

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

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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, and 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 rose to $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.

Its net income fell to $280.4 million, and its EPS (earnings per share) rose to $1.55 in 1Q16, compared to 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 growth 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 to 54,000.

In the next and final part of this series, we’ll discuss Sony (SNE).

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