Stock Analysis & Ideas

Harley-Davidson Roars Ahead after Earnings—Shares Up 7%

Story Highlights

Harley-Davidson gained over 7% in Thursday’s trading session as it beat earnings estimates. Several points suggest this iconic brand can continue to survive–even thrive–going into a recessionary environment.

There were those who thought that iconic motorcycle maker Harley-Davidson (HOG) was finished as a company. The latest earnings report, however, proved the skeptics wrong. Harley-Davidson posted earnings of $1.46 per share against a Zacks consensus calling for $1.25 per share. As a result, shares gained over 7% in Thursday’s trading session.

Revenue also came in ahead of projections, though it was down 4% against the previous year’s figures. Harley posted $1.469 billion in revenue against a year prior’s figure of $1.532 billion. The company even went so far as to reaffirm its full-year guidance.

In the last 12 months, Harley-Davidson shares have struggled to find level ground. Share prices were marked by volatility, but usually, volatility within $5 of $35 per share. Some dips took the company below $30 briefly, and some spikes did the same, over $40. However, for the most part, Harley shares stick around the $35 mark.

Harley-Davidson has demonstrated its resiliency over the last few months. I was bullish on Harley when I talked about it last December, and I remain bullish today. While macroeconomic conditions will further hit the company, it’s made moves to respond accordingly. 

Investor Sentiment Firing on Most Cylinders

Harley-Davidson scores a perfect 10 on TipRanks’ Smart Score. That’s the highest possible score and the highest level of “outperform.” That suggests that Harley has the best chance to outperform the broader market. Based on several levels of investor sentiment, this projection is likely to be accurate. However, not all sentiment is on the good side here.

Word from the TipRanks 13-F Tracker is that hedge funds collectively picked up another 602,000 shares of Harley in the last quarter. This is the third consecutive quarter of increased involvement and the most activity over the previous two years.

Insider trading at Harley is also a major positive. In the last three months, insiders picked up an extra $341,800 in Harley shares. This builds on a development seen over the previous 12 months, where buy transactions among Harley insiders outpaced sell transactions by 33 to eight.

With four informative buys seen in the last quarter, and that representing all of the informative trades, it’s clear insiders are backing their own horse.

The only real downside for the company right now is retail investors. The number of TipRanks portfolios that hold Harley-Davidson stock decreased 0.8% in the last seven days. In the last 30 days, meanwhile, that figure is down 1.5%.

Finally, there’s the matter of Harley-Davidson’s dividend history. It’s been somewhat erratic, but to the company’s defense, it’s maintained that dividend even through the pandemic months.

In March 2020, it came in at $0.38 per share. In May, that dropped to just $0.02. However, in February 2021, it returned to $0.15 and rose to $0.16 in February 2022. It’s not the ideal stock for income investors, but it’s attempting to return to such levels.

Harley-Davidson Keeps on Riding Despite Adversity

When Harley-Davidson announced a two-week shutdown of its production lines due to supply chain issues, some thought the company’s profit margins would be wrecked right along with it. The company’s profits did falter against the previous year’s figures. However, the company was sufficiently far ahead that it could weather a production slowdown, based on the numbers seen.

Indeed, such production hikes can throw a crimp into sales. Like Harley dealers recently told Reuters, you really can’t “…sell someone a $40,000 bike that we don’t have in front of us.” I’m given to understand that the furniture industry routinely works that way, however, so it may not be that far a bridge to cross.

Harley is thus stepping up some of its new models to help try and fill the gaps. The LiveWire brand, for example, is already making some headway. Wisconsin’s Marquette University just days ago started a pilot program for the LiveWire motorcycle featuring a version specifically geared toward the security sector.

Harley also stepped up its involvement in professional motorsports, offering a Pan America 1250 for use in the Baja Espana Aragon rally.

This is an excellent example of Harley’s versatility in a nutshell. It’s working in several sectors at once, and that kind of product diversification can really work for a company’s bottom line.

Yes, production shutdowns are a serious problem, but with a bit of planning in advance of potential shutdowns, a shutdown can turn into a slowdown with much less impact.

Nevertheless, Harley will take a hit from the macroeconomic conditions. It’s hard to sell a $40,000 bike that isn’t there, as Harley reps noted. However, it’s also hard to sell a $40,000 bike to someone whose grocery bill just double, or to someone who just lost a job. All of these points are possible in a recessionary environment of the kind we’re likely to enter soon if we’re not already there.

Fortunately, Harley has two key points working in its favor.

One, it can make an excellent case for itself as a fuel-saving option. With pain at the gas pump hitting consumers hard, Harley’s average gas mileage of 42 miles per gallon should spell relief. Sure, it’s a high initial cost, but saving about 50% on every trip to the gas station is a compelling case.

Two, as the saying goes, this too shall pass. Most recessions come and go. Though there’s always the possibility that this could be the last recession—just ask investors in 2008 what they thought—chances are this one will also come and go.

Harley will likely survive, and customers will probably have pent-up demand for a big new motorcycle that gets great gas mileage when times improve.

Wall Street’s Take on HOG

Turning to Wall Street, Harley-Davidson has a Moderate Buy consensus rating based on five Buys and four Holds assigned in the past three months. The average Harley-Davidson price target of $46.71 implies 26.8% upside potential.

Analyst price targets range from a low of $35 per share to a high of $60 per share.

Conclusion: An Iconic, Enduring Brand

Harley has been in bad situations before. The production line shutdown hindered Harley for a while, but only somewhat, as we saw in the company’s revenue and earnings numbers. Harley endures. It’s one thing Harley has done well since its early days in 1903. Harley has survived countless recessions, multiple wars, and even a Great Depression, coming out solidly on the other side every time.

This kind of history is enough to make me bullish. The company has survived hardship before. Likely, it will again. We all know that past performance is no guarantee of future performance, but it’s one of the best metrics we’ve got.

With Harley currently trading close to its lowest price targets, it has some potential for upward moves. A solid dividend history, mostly positive investor sentiment, and good numbers from this quarter suggest that the company can continue to endure going forward.


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