Harley-Davidson Stock Is Still Riding Strong

by Jonathan Berr | October 24, 2013 2:54 pm

Harley-Davidson Stock Is Still Riding Strong

Iconic motorcycle manufacturer Harley-Davidson (HOG[1]) reported solid quarterly results[2] this week, helped by this summer’s spike in North America motorcycle sales.

Net income rose at HOG to $162.7 million or 73 cents a share. That was in-line with analyst expectations and marked a 21% improvement from earnings of $134 million, or 59 cents a share, a year ago. Sales also surged a solid 7% to $1.34 billion.

Though Harley shipments haven’t reached their pre-recession levels of 350,000,[3] they are on the rise once again. For the full-year, shipments are expected to be between 259,000 to 264,000. They rose 2.3% in the most recent quarter to 54,025 — also in-line with expectations for HOG.

Harley-Davidson has also been expanding its marketing towards women and overseas customers. About 30% of its customers have come from this outreach, according to Jamie Katz, an analyst with Morningstar.

“They have done a spectacular job with outreach,” she said in an interview. “They totally blew away our expectations.”

Plus, Harley still has its core consumer base, and remains an aspirational brand. As Baby Boomers begin retiring in droves over the next few years, many of them are going to want to make “Easy Rider” fantasies that have laid dormant for decades come true.

No wonder investors have been impressed with Harley-Davidson; HOG stock has soared more than 33% year-to-date — 11 percentage points better than the S&P 500. Many analysts don’t think HOG stock is going to run out of gas quite yet, either. JPMorgan, for one, recently reiterated its “overweight” rating of HOG stock and raised its price target to $70.

One thing to note: Harley does have a new rival: Indian motorcycles — a brand being resurrected by Polaris Industries (PII[4]).

The return of the brand, which went out of business in the 1950s, has generated lots of buzz. It was featured on the A&E reality show American Pickers and has captured the attention of the motorcycle trade press.

“They styled them beautifully,” said Mark Hoyer, editor-in-chief of Cycle World in an interview about the Indian revival, adding that Polaris has plenty of engineering savvy that it can channel into its motorcycle business. “They are in it to win it.”

The precise impact of Indian on the motorcycle market isn’t clear yet since Polaris, which also makes Victory motorcycles, only began shipping them in September. But all in all, it represents a small threat to HOG stock.

To start, Polaris is dwarfed in size by Harley. Sales in Polaris Motorcycles division fell 6% to $49.4 million in the three months through Sept. 30 as dealers were “continuing to calibrate their inventory levels.” Meanwhile, motorcycles sales for HOG totaled nearly $860 million during the same quarter.

And HOG holds a whopping 55% heavy weight motorcycle market share, while the Polaris Victory brand’s 5% market share is less than a-tenth of Harley’s.

“It’s going to be really hard to gain share from Harley,” Katz of Morningstar said. And her views were echoed by Hoyer.

“Harley has an unrivaled relationship with American culture and motorcycles dating back 110 years.” he added.

With that in mind, there’s no reason to think HOG stock can’t continue revving up a stellar performance for investors.

Jonathan Berr doesn not own shares of the afformentioned stocks.   Follow him on Twitter@jdberr and at Berr’s World[5]. 

Endnotes:
  1. HOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=HOG
  2. solid quarterly results: http://online.wsj.com/article/BT-CO-20131022-705225.html?mod=WSJ_qtoverview_wsjlatest
  3. pre-recession levels of 350,000,: http://www.reuters.com/article/2013/10/22/us-harleydavidson-results-idUSBRE99L0HM20131022?type=companyNews
  4. PII: http://studio-5.financialcontent.com/investplace/quote?Symbol=PII
  5. Berr’s World: http://www.jonathanberr.com

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