Tags: Harley-Davidson | luxury | price | HOG

Harley-Davidson: Working-Class Bike With Luxury Price

By    |   Monday, 20 August 2012 07:00 PM

Harley-Davidson (HOG) is a working-class bike that really belongs in the luxury stock group. Its motorcycles resonate with the American brand of power and presence on the road while its price competes with entry-level cars. A slowing economy can take some rev out of spending on transportation in general, and even more so for rolling status symbols.

Harley-Davidson is operates in two segments: its iconic motorcycles and related products segment and a financial services segment. The motorcycles segment designs, manufactures and sells at wholesale heavyweight (engine displacement of 651+cc) Harley-Davidson motorcycles as well as a line of motorcycle parts, accessories, general merchandise and related services.

The company’s products are sold to retail customers through a network of independent dealers. HOG conducts business on a global basis, with sales in North America, Europe/Middle East/Africa (EMEA), Asia-Pacific and Latin America.

The financial services segment consists of Harley-Davidson Financial Services (HDFS). HDFS provides wholesale and retail financing and provides insurance and insurance-related programs primarily to Harley-Davidson dealers and their retail customers. HDFS conducts business principally in the United States and Canada.

The primary business of the motorcycles segment is to design and manufacture premium motorcycles for the heavyweight market and sell them at wholesale. The company’s worldwide motorcycle sales generated approximately 76 percent of total net revenue in the motorcycles segment during 2011.

Harley-Davidson has a market cap of $9.64 billion in a sector, automobiles, where the average company size is $6.5 billion. Its trailing 12-month P/E ratio is 14.94 and its five-year projected price-to-earnings-growth (PEG) ratio is 0.92, compared to 0.42 for the sector.

Its projected earnings per share growth for the coming year is 24.19 percent, compared to a sector average of 15.32 percent.

Cut target

Analysts are mixed on HOG, with buy or outperform calls from Raymond James, RBC Capital Markets, Smith Barney and Ned Davis Research.

“We cut our target price by $6 to $44. We lowered our '12 EPS estimate by $0.04 to $2.74, and '13's by $0.27 to $3.10,” said the analysts at Standard & Poor’s Equity Research in a note dated Aug. 1.

“Our target price reduction reflects our reduced profit outlook and lower visibility, and is based on historical and peer P/E analysis.”

Harley-Davidson next reports on Oct. 31.

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Monday, 20 August 2012 07:00 PM
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