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What Could Hurt Harley-Davidson’s Valuation Multiples in Q2?

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Harley’s valuation multiples

On April 23, Harley-Davidson’s (HOG) forward EV-to-EBITDA (enterprise value-to-EBITDA) multiple was 12.0x. In the last year, Harley’s valuation multiples haven’t changed much, while in the last six months, its multiples have risen slightly due to recent positive movements in its stock price.

Nevertheless, HOG’s EV-to-EBITDA is still significantly higher than Japanese motorcycle maker Honda Motor’s (HMC) multiple of 6.1x.

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Forward PE ratio

Harley’s forward PE ratio, based on its earnings forecast for the next 12 months, is 11.9x, also much higher than Honda’s 7.5x. HOG commands a higher valuation partly due to its strong position in the premium heavyweight motorcycle segment globally.

Similarly, Ferrari (RACE) typically has much higher valuation multiples than legacy US automakers such as General Motors (GM) and Ford Motor Company (F). Ferrari’s strong premium vehicle line-up could be the reason for its higher valuation, as luxury vehicles yield higher profit margins than mass-market vehicles.

Factors to watch in the second quarter

During its first-quarter earnings event, HOG’s management maintained its 2019 shipment guidance. However, the company expects an 11.2%–19.7% sequential rise in its second-quarter global shipments. In the second quarter, investors should closely watch the trend in Harley-Davidson’s retail sales and shipments. Lower-than-guided shipments are likely to hurt its future earnings growth estimates and drive its valuation multiples down.

Also, due to ongoing weakness in HOG’s home market sales, it’s become more important for the company to increase its focus on international markets. Continued weakness in Harley’s international market sales could be negative for its valuation in the coming quarters.

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