If you had to vote for an iconic American enterprise, nothing screams red, white, and blue quite like Harley-Davidson (NYSE:HOG). While the motorcycle brand enjoyed the passing of the torch between generations, Generation Z might hurt the company because its upbringing is unique. Therefore, investors should be cautious about its long-term prospects. I am neutral on HOG stock.
Culture Clash Disrupts Iconic HOG Stock
Back during the 2008 presidential campaign, the late Senator John McCain and former Republican candidate for president, stated that he’ll “take the roar of 50,000 Harleys any day” over the adulation of citizens of foreign countries. McCain knew what he was doing, connecting conservative values with homegrown American companies. However, this ethos now clashes with the emerging culture, presenting challenges to HOG stock.
Don’t misread the above – Harley-Davidson represents a pioneer in the broader personal mobility space. If one wanted to get into motorcycles, the Harley brand basically represents the equivalent of a Rolex. Even for those who don’t understand two-wheeled transportation, everyone knows Harley.
However, let’s also be real – the rising Gen Z demographic doesn’t fit (on average) the brand ethos. If a Harley motorcycle represented the centerpiece of a Rorschach test, associated projections would likely be “beer” and “firearms.” Do the same exercise for the Gen Z cohort, and you’ll likely hear “social equity” and “net-zero emissions.”
For example, Anheuser-Busch (NYSE:BUD) recently set off a conservative backlash when it partnered with social media star Dylan Mulvaney. Of course, Mulvaney garnered fame for documenting her gender transition on TikTok, and like it or not, that’s what Gen Z does — bring light to various social causes.
Harley-Davidson riders? They were likely the ones egging on Kid Rock to shoot up Bud Light cans with a rifle. Basically, to acquire HOG stock is to believe that oil and water can mix.
Harley Faces a Generational Speedbump
Over the long run, HOG stock will likely struggle as the underlying enterprise stares down a generational speedbump. Sure, the company delivered an outstanding performance for its first-quarter earnings report. However, the positive print probably won’t overcome the unique rearing of Gen Z.
By the numbers, HOG stock seems a no-brainer. “Harley-Davidson delivered a solid start to the year, with consolidated first quarter revenue up 20%, driven by HDMC [Harley-Davidson Motor Company], reflecting the progress we continue to make in advancing our Hardwire strategic plan,” stated in part Jochen Zeitz, Chairman, CEO and President.
Further, diluted earnings per share hit $2.04, up 41% on a year-over-year basis. As well, management reaffirmed its full-year outlook, which in part calls for HDMC revenue growth to hit 4% to 7%. Despite the positive implications, the overall sentiment for the year remains negative. Since the January opener, HOG stock has slipped 10%.
The pain might not end there. As The Wall Street Journal pointed out, manual-transmission cars account for only 1.7% of total new vehicle sales in 2023. True, a phenomenon exists to save the manual from complete obsolescence, which many young people find endearing. Nevertheless, with the rise of electric vehicles, the “analog” mobility market faces an uphill battle against relevance.
Further, the older millennial demographic lacks tools and basic skillsets for routine home maintenance tasks. This circumstance will only worsen over time because millennials were the last generation to have a working knowledge of analog tech. With Gen Z onward, it’s all digital, all the time.
Frankly, such a framework is not conducive for a motorcycle company.
A Cautionary Note on the Financials
Turning to the financial print, Harley-Davidson seems to be firing on all cylinders. For instance, for Fiscal 2022, the company posted total revenue of nearly $5.76 billion. That’s a sizable jump from 2021’s tally of $5.34 billion and even more so from the pandemic-disrupted haul of $4.05 billion in 2020.
Still, it’s worth pointing out that in 2019, Harley posted $5.36 billion in sales. And in the year before that, it rang up $5.72 billion. In other words, the revenue of $5.76 billion isn’t that impressive under the broader context. Combined with a total addressable market that may decline due to the generational culture clash, HOG stock seems risky.
Is HOG Stock a Buy, According to Analysts?
Turning to Wall Street, HOG stock has a Moderate Buy consensus rating based on four Buys, six Holds, and zero Sell ratings. The average HOG stock price target is $47.88, implying 30% upside potential.
The Takeaway: Enjoy the Ride in HOG Stock While It Lasts
When Americans didn’t care one bit about the environment and political correctness, buying HOG stock was a profitable venture. However, with social mores almost completely shifting toward another direction, Harley will almost surely incur major challenges. As the generational divide deepens, HOG may face more pressure.