What’s Happening With Harley-Davidson Stock?

Harley-Davidson (NYSE:HOG) stock has risen by about 28% year-to-date considerably outperforming the broader S&P 500 which remains down by about 17% over the same period. Like most automotive players, Harley, too, was weighed down by a host of external factors including component shortages, rising inflation, and concerns about the global economy. However, things are improving. The company posted a better-than-expected set of Q3 2022 results, with revenue rising by 21% year-over-year to $1.65 billion, as wholesale volumes recovered strongly from the production suspension seen over Q2 due to the semiconductor shortage. Operating profit margins stood at 20.6%, up from 14.9% in Q3 2021 and 17% in Q2 2022, as the company focused on more profitable models, with pricing also remaining robust helping to more than offset inflation. Harley also reaffirmed its outlook, noting that it expects motorcycle revenue to grow by between 5% and 10% for the full year. This has likely given investors confidence about the company’s execution capabilities in the current environment.

There have been mounting concerns that the U.S. could enter a recession as the Federal Reserve raises rates to fight inflation, with consumer spending also weakening. However, investors are betting that Harley’s business will hold up better than the broader automotive market even through a downturn, as demand has generally outstripped supply in recent quarters.  Even post the recent rally, Harley’s valuation also appears quite compelling at current levels of about $48 per share, considering that it trades at just about 10x consensus 2022 earnings. Moreover, although the company saw flat to negative growth over the last several years, we expect Harley to grow revenue by around 7% over both 2022 and 2023. Harley’s dividend yield of about 1.5%, although not generous, is well covered by the company’s financials and this could be making the stock a bit more attractive in the current rising interest rate environment. We value HOG stock at about $55 per share, about 10%  ahead of the current market price. See our analysis on Harley- Davidson Valuation: Expensive or Cheap for more details. Also, check out our analysis of Harley-Davidson Revenue for more information on the company’s key revenue streams and how they are trending.

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[1] Month-to-date and year-to-date as of 11/14/2022
[2] Cumulative total returns since the end of 2016

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