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Harley-Davidson Inc HOG

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Morningstar’s Analysis

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Positives Outweigh Negatives in Harley’s First Quarter; Shares Trading Ahead of Fundamentals

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

Wide-moat Harley-Davidson reported strong first-quarter profitability, with motorcycle operating margins clocking in at 18.5%, significantly higher than the 8% we expected and the 10.5% at consensus (Visible Alpha). While motorcycle-related sales were around our projection, at $1.2 billion, consolidated expenses improved handily, with the gross margin expanding roughly 400 basis points (to 34%) and selling, general, and administrative costs declining 565 basis points, to 15.7% (a level last seen in first-quarter 2014). Additionally, financial services benefited from the release of $102 million in reserves, accounting for about $0.65 in EPS, as 30-day delinquency and loss experience during the quarter remained extremely low (2.1% and 1.5%, respectively). We plan to raise our $34 fair value estimate by a high-single-digit clip in response to recent outperformance but view shares as overvalued.

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Company Profile

Business Description

Harley-Davidson is a global leading manufacturer of heavyweight motorcycles, merchandise, parts, and accessories. It sells custom, cruiser, and touring motorcycles and offers a complete line of Harley-Davidson motorcycle parts, accessories, riding gear, and apparel, as well as merchandise. Harley-Davidson Financial Services provides wholesale financing to dealers and retail financing and insurance brokerage services to customers. Harley has historically captured about half of all heavyweight domestic retail motorcycle registrations, a metric it has ceded in 2020 as it has repositioned the business. The firm is set to expand into the middleweight market in 2021 with the launch of the Pan America model.

3700 West Juneau Avenue
Milwaukee, WI, 53208
T +1 414 342-4680
Sector Consumer Cyclical
Industry Recreational Vehicles
Most Recent Earnings Mar 31, 2021
Fiscal Year End Dec 31, 2020
Stock Type Cyclical
Employees 4,600