Harley-Davidson, Inc. (HOG) in Milwaukee, Wisc., manufactures and sells custom cruiser and touring motorcycles. The company operates in two segments: motorcycles; and related products and financial services. Shares of the renowned motorcycle manufacturer have gained 17.2% in price over the past year and 10.7% year-to-date. Over the past five days, the stock has gained 16.7% to close the last trading session at $41.72.

The stock jumped nearly 15% in price on February 8, after the company posted a sharp increase in revenue and a surprise profit for the fourth quarter, boosted by price hikes and a shift toward sales of higher-margin touring and cruiser motorcycles. For the last two years, the company had been strategizing and focusing on selling its high-margin products to older and wealthier customers in markets that include the U.S. and Europe. The higher pricing strategy and stable demand helped the company hold up well amid surging raw material prices and volatile supply chains.

Although HOG expects robust demand for its products, supply chain disruptions could remain a major headwind. “Supply-chain issues are not going away. In fact, they will intensify in the year,” chief executive officer Jochen Zeitz said. HOG expects 5 - 10% revenue growth in its core motorcycle segment in 2022, but its operating income is expected to decline by 20 - 25%. In addition, the Street expects its EPS to decline 11.3% year-over-year in the quarter ending March 2022.

Here is what could shape HOG’s performance in the near term:

Better-Than-Expected Quarterly Result

HOG’s total revenues increased 40.1% year-over-year to $1.02 billion. Its revenue from its motorcycle and related products segments came in at $816.02 million, compared to analysts’ estimates of $668.85 million. HOG’s operating loss from motorcycles and related products stood at $102.39 million, down 47.9% from its prior-year quarter. Its net income came in at $21.57 million, up significantly from its $96.40 million year-ago loss, while its EPS increased 122.2% year-over-year to $0.14, surpassing the negative $0.38 consensus estimate.

The company has declared a new quarterly dividend of 15.75 cents per share, up 5% from the previous 15 cents per share. The dividend is payable on March 18, 2022, to the shareholders of record as of Feb. 28, 2022. However, HOG’s dividend payouts have decreased at a 26% CAGR over the past three years and a 15.6% CAGR over the past five years.

SPAC Deal Expected to Boost Capabilities

HOG announced its plans to merge its LiveWire electric bike operations with an SPAC (special purpose acquisition company) called AEA-Bridges Impact Corp., at a $1.77 billion cost. The business combination agreement will create a new publicly traded company, which is expected to be listed on the New York Stock Exchange under the symbol “LVW.” The deal is expected to close in the first half of this year, with HOG holding a 74% equity interest in LiveWire. With this deal, LiveWire aims to become the first publicly traded EV motorcycle company in the U.S.

“This transaction will give LiveWire the freedom to fund new product development and accelerate its go-to-market model. LiveWire will be able to operate as an agile and innovative public company while benefiting from the at-scale manufacturing and distribution capabilities of its strategic partners, Harley-Davidson and KYMCO,” Zeitz explained.

Mixed Valuation

In terms of forward EV/Sales, HOG is currently trading at 2.34x, which is 77.6% higher than the 1.32x industry average. Also, its 1.31 forward Price/Sales ratio is 21% higher than the 1.09 industry average.

However, HOG’s 9.78x forward P/E is 32.9% lower than the 14.57x industry average, and its forward Price/Book is 31% lower than the 3.00x industry average.

POWR Ratings Reflect Uncertainty

HOG has an overall rating of C, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a D grade for Stability, which is consistent with its 1.46 beta.

HOG has a C grade for Growth. This is justified because the company’s revenues have decreased at a 2.3% CAGR over the past three years.

Among 69 stocks in the Auto & Vehicle Manufacturers industry, HOG is ranked #13.

Beyond what I have stated above, you can also view HOG’s grades for Quality, Sentiment, Momentum, and Value here.

View the top-rated stocks in the Auto & Vehicle Manufacturers industry here.

Bottom Line

Although the company plans to expand its capabilities, supply chain disruptions and semiconductor shortages could persist this year, hampering its near-term growth and squeezing its margins. Furthermore, its EPS is expected to decline this quarter. Thus, we think it could be wise to wait for a better entry point in the stock.

How Does Harley-Davidson, Inc. (HOG) Stack Up Against its Peers?

While HOG has an overall POWR Rating of C, one might want to consider taking a look at its industry peers, Hino Motors, Ltd. (HINOY), Daimler AG (DDAIF), Honda Motor Company, Ltd. (HMC), which have a B (Buy) rating.

HOG shares rose $0.03 (+0.07%) in premarket trading Monday. Year-to-date, HOG has gained 10.77%, versus a -7.62% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

More...