Harley-Davidson (HOG) is the world’s most popular heavyweight motorcycle manufacturer. Since its beginning, Harley-Davidson has maintained its own premium space in the crowded motorcycle market. In 2016, the company’s stock impressed investors by delivering a ~28% return, outperforming auto companies.
However, the company has been facing several operational challenges in 2017, which have hurt its stock. As of August 28, Harley-Davidson stock had lost ~19.3% YTD (year-to-date). This YTD performance was much worse than that of auto industry players (XLY) Honda Motor (HMC), General Motors (GM), and Ford Motor (F).
Analysts on Harley-Davidson stock
According to recent data compiled by Reuters, 76% of analysts covering Harley stock have given it “hold” recommendations. Only 19% of analysts recommended “buy,” and the remaining 5% gave it “sell” recommendations.
On August 28, Harley-Davidson’s consensus 12-month target price was $51, representing an upside potential of ~8.4% from its market price of $47.06. Analysts’ consensus target price for Harley-Davidson stock has fallen sharply in the last month, from $58.04 to just $51.
What could be driving pessimism
In 2Q17, HOG reported global revenue of ~$1.8 billion, which reflected a YoY (year-over-year) fall of about 5.2%. In the previous quarter, the company’s revenue fell as well, by 14.2% YoY. The company’s second quarter gross margin was 36.5%, flat compared with its 36.4% margin a year prior.
In its 2Q17 earnings release, Harley revised its shipment guidance downward. The company expects its 2017 global shipments to be 6%–8% lower than in 2016. Similarly, it expects a ~1% contraction in its operating margin between 2016 and 2017. This dismal 2017 outlook could be why analysts are maintaining a cautious view on Harley-Davidson stock in August 2017. In the next part, we’ll compare automakers’ valuation multiples after the 2Q17 earnings season.