VALUATION HIGHLIGHTS
- Financial Services constitute 78% of the Trefis price estimate for Harley-Davidson's stock.
WHAT HAS CHANGED?
- Latest Earnings
Harley-Davidson posted a weaker-than-expected set of Q4 2024 results. Revenues declined 35% year-over-year to $688 million and the company posted a net loss of $0.93 per share compared to a profit in the year-ago quarter.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
- Total Worldwide Shipments
Harley Davidson's total worldwide shipments declined from 214k in 2019 to around 194k in 2022, driven largely by the impact of the Covid-19 pandemic and saturation in the company's core U.S. market. Sales stood at 179k units in 2023. However, with the company focusing on bringing in new customers, sales could recover to over 200k units by the end of 2031. However, if sales surpass our estimates and rise to over 250k, there could be a 10% upside to our price estimate.
- Average Revenue Per Motorcycle:
Harley-Davidson's average revenue per motorcycle increased from around $16,000 in 2019 to about $21,000 in 2023. Going forward, we expect it to increase over our forecast period to about $23,000. However, if the company can generate higher revenue per motorcycle of about $25,000, there can be a 10% upside to our price estimate.
BUSINESS SUMMARY
Harley-Davidson manufactures heavyweight (601cc+) cruiser and touring motorcycles. Outside the U.S., the company's most significant markets include Europe and Japan. The company is known for fostering strong customer engagement through motorcycling-related community activities. It sponsors the Harley Owners Group (HOG), the largest riding club in the world, with over 1 million members. These initiatives help boost sales of motorcycle accessories and merchandise, significantly contributing to overall revenue. Like many automobile manufacturers, Harley operates a financial services division, Harley-Davidson Financial Services (HDFS), which provides retail loans for new and used motorcycles, wholesale loans to support dealer operations, and acts as an agent for motorcycle-related insurance.
SOURCES OF VALUE
Despite a shrinking market over the past few years, motorcycle sales are still the largest source of value for Harley-Davidson
Harley's motorcycle division is still its most valuable segment, given the ongoing recovery in motorcycle sales following Covid-19 and an increasing focus on higher-value motorcycles such as Touring, large Cruisers, and Trikes. Gross margins for the segment are also relatively thick by automotive industry standards, standing at around 28% in 2024.
KEY TRENDS
- The Hardwire strategic plan
In 2021, Harley unveiled a five-year strategic plan it called "The Hardwire." Under the plan, the company is targeting low double-digit EPS growth through 2025, mid-single-digit revenue growth in the motorcycles segment, and double-digit growth in operating income for the financial services segment. The company also intends to grow in presence in the Touring, large Cruiser, and Trike segments, which are the most profitable segments of the motorcycle market.
- Increase in non-traditional riders taking up motorcycling
The U.S. heavyweight motorcycle market has traditionally been dominated by middle-aged white men. However, with baby boomers aging out of riding motorcycles and millennials favoring lighter, more affordable bikes, growth in the heavyweight segment could remain sluggish.
Harley-Davidson aims to offset the decline in its core customer base by expanding sales to non-traditional riders, including younger, female, and ethnically diverse customers. The company's 2027 strategic plan targets creating 2 million new Harley-Davidson riders in the United States.
