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< Famous Brands
FirstRand >

Harley-Davidson (NYSE: HOG) stock valuation on 24 October 2016

Category: Financial markets and stock valuations 
Date:24 October 2016
Price at time of writing: $56.89 

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chart created with amCharts | amCharts

Background and overview of Harley-Davidson (HOG)
There is not a motor-cycle in the world as well known as the name Harley-Davidson. The company was founded in the early 1900's and has survived through world wars and the great depression as well as the financial crisis to hit the USA in 2008-2010. Below a brief look into HOG from Wikipedia.

Harley-Davidson, Inc. (H-D), or Harley, is an American motorcycle manufacturer, founded in Milwaukee, Wisconsin in 1903. As one of two major American motorcycle manufacturers to survive the Great Depression (along with Indian),the company has survived numerous ownership arrangements, subsidiary arrangements (e.g., Aermacchi 1974-1978 and Buell 1987-2009), periods of poor economic health and product quality, as well as intense global competition— to become the world's largest motorcycle manufacturer and an iconic brand widely known for its loyal following — with owner clubs and events worldwide as well as a company sponsored brand-focused museum.

​Scroll over or click on the funnel chart to get more details of HOGs latest financial results.
funnel | amCharts

Financial review: 
Harley is sitting on a net profit margin of 8.95% for the three months ending September 2016. So essentially for every  $100 they receive they make $8.95 in profits after paying all expenses and taxes. Pretty solid margins for HOG. 

Diluted earnings per share came in at $0.64  a share for the quarter. This places HOG on a PE ratio of 14  (assuming the last quarter of the fiscal year's earnings will be the same as that of the last quarter). The PE is not very demanding, especially not for a company with such a strong brand name and loyal customer base. Harley is currently sitting on a dividend yield of 2.46%. Pretty solid dividend from Harley.

​
Cash generated by operating activities for the 9 months (first two quarters of the fiscal year) amounted to $927.829million (or roughly $5.17 a share). That makes it about $1.72 a share in cash generated from operating activities per quarter. Decent cash generated from Harley.  At the end of the 6 months their cash and equivalents on their balance sheet was $790million (or $4.13 a share in cash).
​
Pie chart shows number of bikes shipped per type:
3D donut | amCharts
For the three months Harley-Davidson shipped a total of 48 611 motor-cycles. Its clear their Touring bikes are the most popular sellers with it making up 47.9% of all bikes shipped in the third quarter of 2016. With the cruising and sportster bikes making up the other 53%. Another interesting observation from HOG's quarterly financials is the fact that parts and accessories makes up roughly 21% of Bike and related turnover (excluding turnover from financing). Pretty good number that shows they not just dependent on new bike sales.

We are a little worried about what lies on Harley's balance sheet under their "assets".  Accounts receivable and finance receivable made up over $2.5billion of their $4.1billion in current assets (that's 60% of their current assets made up in money that is still owed to them). Thats up from 51% 12months earlier. The worry is if interest rates are set to increase in the USA, some of their clients will start defaulting on the repayments on their bikes. Rather stop paying your bike than your house.

A few financial ratios for Harley-Davidson  (calculated using our Financial Ratios Calculator):
  • Debt to Equity Ratio: 4.13  (more than 2 shows high levels of financial leverage). 
  • Current Ratio: 1.61  (A measure of liquidity. Less than one signals possible trouble in paying off current liabilities).  
  • Quick Ratio:1.44 (Another liquidity measure. Shows how much in liquid assets is available to cover current liabilities or short term debt).  
  • Return on Assets (ROA): 1.12%
  • Return on Equity (ROE) : 5.73% 
  • Net Profit Margin: 8.95%
  • Dividend Yield: 2.46%

Valuation: 
Based on Harley's current financial results we value them at between $62.12 and $62.25. We therefore feel they do offer some value at their current price for long term value investors. Investors should just be cautious about the fact that their account receivables and finance owed to them is increasing as % of current assets, and that should interest rates increase, the possibility of defaults and write offs by Harley becomes a likelihood.

For South African investors, please remember exchange rate movements will have an impact on the value of your Harley-Davidson shares when the value is calculated in Rand terms.
​
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question. Note this is not a binding valuation and investors should do their own research before investing in a specific share. Southafricanmi.com cannot be held liable for any losses incurred, We would accept donations on profits made though ;)

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