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Powering Ahead: Why Harley-Davidson and Polaris Can Sustain Their Competitive Positions

Polaris' and Harley-Davidson's competitive clout is intact.

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Morningstar's recreational vehicle coverage list includes two companies with sustainable competitive advantages and dominant market share positions:  Polaris Industries (PII) and  Harley-Davidson (HOG). Their strong brands, which command pricing power, and a large and intact distribution channel have built their advantageous positions. Entry into the manufacturing of off-road vehicles, motorcycles, or snowmobiles would require strong brand equity, superior technological innovation, and significant capital to set up a manufacturing facility. For existing rivals, a threat to Harley's and Polaris' leading share positions would likely come from the introduction of a compelling, innovative product in a new category (like Polaris' introduction of side-by-sides a few years ago in off-road vehicles). Either way, we believe we would have sufficient lead time to see a meaningful threat develop before having to reassess the moat status on either of these leading recreational vehicle firms.

We've Upgraded Harley-Davidson's Moat Trend to Stable From Negative Following a Review of Brand Opportunities Beyond Core Customer and Longer-Term Pricing Power Trends
While we originally thought Harley would face tenuous headwinds as its core consumer became a smaller proportion of the total population and could be challenged to penetrate new markets with its traditionally heavy displacement bikes, we now realize that we may have underestimated the universal appeal of Harley's brand. Our previous negative moat trend rating was based on concerns that the company would find it difficult to penetrate new audiences outside its core customer (Caucasian men older than 35) with its traditionally heavy displacement bikes. However, recent customer segment data suggests that the Harley brand may carry more broad appeal than we initially believed. During the past four years, the firm has made significant inroads into key outreach categories (African Americans, Hispanics, women, young adults), which now comprise 30% of all new domestic bike sales.

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Jaime M. Katz, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.