Harley-Davidson stock looks like a great value at $40

HArley-Davidson (NYSE:HOG) stock has done well this year, rising nearly 6% since early January, relative to the broader S&P 500, which remains down nearly 3%, and to most other auto stocks, which fell by double-digit levels. The outperformance was driven by Harley’s better-than-expected fourth quarter 2021 results, which saw the company increase revenue 40% year-over-year to $1.016 billion, while posting a surprise profit, in what is generally a seasonally weak quarter. The company’s motorcycle shipments also increased to 29,075, up 38% from a year ago. Investors have also been impressed with how the company is handling inflationary pressure and supply chain challenges, via price surcharges on its motorcycles and better inventory management. Separately, markets have also pivoted towards more reasonably priced stocks and away from high multiple growth names as monetary policy tightens, which is also likely to help Harley stocks.

Despite recent gains, we believe Harley-Davidson’s risk-reward positioning is very supportive at current levels. At around $40 per share, HOG shares are trading at around 9 times expected 2022 earnings and around 8 times expected 2023 earnings. , we expect Harley to increase revenue by more than 10% in 2022 and around 7% in 2023. The company is also focusing on higher-margin motorcycles, eliminating new development of lower-margin bikes, while targeting low double-digit EPS growth through 2025, as part of its five-year “Hardwire” strategic plan. Harley is also increasingly betting on the e-bike space, through its LiveWire electric motorcycle business. While LiveWire is expected to be spun off into a separate, publicly traded company via a SPAC deal this year, it will still be majority-owned by Harley. It could also have an overall positive impact on the company’s valuation. Harley’s financial services division is also poised for stronger near-term growth as rising interest rates and its push into used motorcycle financing generate profits.

We value HOG shares at around $54 per share, about 30% ahead of the current market price. See our analysis on Harley-Davidson Rating: Expensive or Cheap for details. Also discover our analysis of Harley-Davidson turnover for more information on the main sources of income of the company and their evolution.

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Return March 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
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S&P 500 return 6% -3% 107%
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[1] Monthly and cumulative total as of 03/30/2022
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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