Is Harley-Davidson undervalued based on future cash flows and its price relative to the stock market?
Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current
share price of Harley-Davidson to its discounted cash flow value.
The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.
How is this discounted cash flow calculated?
Amount off the current price Harley-Davidson is available for.
Share price is $52.32 vs Future cash flow value of $83.88
Current Discount Checks
For Harley-Davidson to be considered undervalued it must be available for at least 20% below the current price. Less than 40% is even better.
- Harley-Davidson's share price is below the future cash flow value, and at a significant discount (> 20%).
- Harley-Davidson's share price is below the future cash flow value, but not at a substantial discount (< 40%).
We assess Harley-Davidson's value by looking at:
- Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) (Click here or on bar chart for details of DCF calculation.)
- Is the PE ratio less than the market average, and/ or less than the Automobiles industry average (and greater than 0)? (2 checks)
- Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
- Is the PB ratio less than the Automobiles industry average (and greater than 0)? (1 check)
Harley-Davidson has a total score of 2/6, see the detailed checks below.
Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (9.27%).
Full details on the Value part of the Simply Wall St company analysis model.
Discounted cash flow (Free cash flow to Equity)
The calculations below outline how an intrinsic value for Harley-Davidson is arrived at by discounting future cash flows to their present value. We use analyst's estimates of cash flows going forward 5 years.
5 year cash flow forecast
See our documentation to learn about this calculation.
|Levered FCF (USD, Millions)
Discounted (@ 8.5%)
Present value of next 5 years cash flows:
Terminal Value = FCF2021 × (1 + g) ÷ (Discount Rate – g)
Terminal Value = $995 × (1 + 2.3%) ÷ (8.47% – 2.3%)
Terminal value based on the Perpetuity Method where growth (g) = 2.3%:
Present value of terminal value:
Equity Value (Total value) = Present value of next 5 years cash flows + terminal value
Value = Total value / Shares Outstanding ($14,568 / 174)
Value per share:
Current discount (share price of $52.32): 38%
Estimate of Discount Rate
The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.
Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)
Discount rate = 8.47% = 2.33% + (0.8 * 7.67%)
Estimate of Bottom Up Beta
The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm).
Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))
0.385 = 0.251 (1 + (1- 30%) (76.72%))
Levered Beta used in calculation = 0.8
- The risk free rate of 2.33% is from the 10 year government bond rate in US.
- The bottom-up beta is estimated by analysing other companies in the same industry.
- The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (10%) (source: Buffet).
- The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.
How is Harley-Davidson expected to perform in the next 1 to 3 years based on estimates from 18 analysts?
The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.
Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
Expected earnings growth over 3 years.
Future Earnings growth analysis
Is Harley-Davidson expected to grow at an attractive rate? We look at the 1 year and 3 year growth below.
Are Harley-Davidson's annual earnings growth expected to exceed 3.4% over the next 3 years?
- After 1 year
- After 3 years
1 & 3 year estimated growth in earnings
Past and Future Earnings per Share
The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occured. We also show the highest and lowest estimates looking forward to see if there is a wide range.
Analysts growth expectations
2 year growth check
Which of the these is expected to increase by over 50% in 2 year's time?
Performance in 3 years
In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
- Harley-Davidson is expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be above 20%.
Improvement & Relative to industry
- Expected to be above the Automobiles industry average.
- An improvement in Harley-Davidson's performance (ROE) is expected over the next 3 years.
Future performance checks
We assess Harley-Davidson's future performance by looking at:
- Is the growth in earnings expected to beat the low risk savings rate, plus a premium to keep pace with inflation, in 1 year and 3 years? (2 checks)
- Does the average analyst expect Revenue to increase by 50% or more in 2 years? (1 check)
- Does the average analyst expect Operating Cash Flow to increase by 50% or more in 2 years? (1 check)
- Does the average analyst expect Net Income (Profit) to increase by 50% or more in 2 years? (1 check)
- Is the Return on Equity in 3 years expected to be over 20%? (1 check)
Some of the above checks will fail if the company is expected to be loss making in the relevant year.
Harley-Davidson has a total score of 3/6, see the detailed checks below.
Note: If no +3 year data is available, +2.5 year data may be used.
Note 2: We use GAAP per Share in all our calculations.
Full details on the Future part of the Simply Wall St company analysis model.
How has Harley-Davidson performed over the past 5 years?
The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
Past earnings growth
Below we compare Harley-Davidson's growth in the last year to its industry (Automobiles).
Past Earnings growth analysis
We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
- Harley-Davidson's earnings growth has not matched the industry average in the past year.
- Harley-Davidson's 1 year earnings growth is negative.
- Harley-Davidson has improved earnings in the past 5 years.
Harley-Davidson's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
Performance last year
We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
- Strong return on shareholders funds (ROE) last year.
- Harley-Davidson performed above the Automobiles industry average based on return on assets (ROA) last year.
- Performance based on revenue producing assets (ROCE) has been diminishing over 3 years.
Past performance checks
We assess Harley-Davidson's performance over the past 5 years by checking for:
- Has earnings per share (EPS) increased in past 5 years? (1 check)
- Has the EPS growth in the last year exceeded that of the Automobiles industry? (1 check)
- Is the current EPS growth higher than the average annual growth over the past 5 years? (1 check)
- Is the Return on Equity (ROE) higher than 20%? (1 check)
- Is the Return on Assets (ROA) above industry average? (1 check)
- Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
Harley-Davidson has a total score of 3/6, see the detailed checks below.
Note: We use GAAP Earnings per Share in all our calculations.
Full details on the Past part of the Simply Wall St company analysis model.
How is Harley-Davidson's financial health and their level of debt?
A company's financial position is much like your own financial position, it includes everything you own (assets) and owe (liabilities).
The boxes below represent the relative size of what makes up Harley-Davidson's finances.
The net worth of a company is the difference between its assets and liabilities.
- Harley-Davidson is able to meet its short term (1 year) commitments with its holdings of cash and other short term assets.
- Harley-Davidson's long term commitments exceed its cash and other short term assets.
This treemap shows a more detailed breakdown of Harley-Davidson's finances.
If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
Liabilities and shares
The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
- Low level of unsold assets
- Total debt is not covered by total short term assets.
Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.
The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.
If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
- The level of debt (350%) compared to net worth is high (greater 40%).
- The level of debt compared to net worth has increased over the past 5 years (218% vs 350% today).
- Total debt is not well covered by annual operating cash flow (less than 20% of total debt).
- Interest on debt is well covered by earnings (38.2x coverage).
Financial health checks
We assess Harley-Davidson's financial health by checking for:
Full details on the Health part of the Simply Wall St company analysis model.
- Are short term assets greater than short term liabilities? (1 check)
- Are short term assets greater than long term liabilities? (1 check)
- Has the debt to equity ratio increased in the past 5 years? (1 check)
- Is the debt to equity ratio over 40%? (1 check)
- Is the debt covered by short term assets? (1 check)
- Are earnings greater than 5x the interest on debt (if comapany pays interest at all)? (1 check)
Harley-Davidson has a total score of 2/6, see the detailed checks below.
What is Harley-Davidson's current dividend yield, its reliability and sustainability?
Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
Annual Dividend Income
Current annual income from Harley-Davidson dividends. Estimated to be 2.92% next year.
If you bought $2,000 of Harley-Davidson shares you are expected to receive $55 in your first year as a dividend.
Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account?
It is up there with the best dividend paying companies?
- Paying above low risk savings rate. (2.25%)
- Paying below the markets top dividend payers. (3.18%)
Historical dividend yield
It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.
We also check to see if the dividend has increased in the past 10 years.
- Dividends per share have been volatile in the past 10 (annual drop of over 10%).
- Dividends per share have increased over the past 10 years.
Current Payout to shareholders
What portion of Harley-Davidson's earnings are paid to the shareholders as a dividend.
- Dividends paid are well covered by net profit (2.5x coverage).
Future Payout to shareholders
- Dividends after 3 years are expected to be well covered by net profit (2.7x coverage).
Income/ dividend checks
We assess Harley-Davidson's dividend by checking for:
Full details on the Dividends part of the Simply Wall St company analysis model.
- Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
- Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
- Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
- If they have paid a dividend for 10 years has it increased in this time? (1 check)
- How sustainable is the dividend, can Harley-Davidson afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
Harley-Davidson has a total score of 4/6, see the detailed checks below.
What is the CEO of Harley-Davidson's salary, the management and board of directors tenure and is there insider trading?
Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
Mr. Matthew S. Levatich, also known as Matt, has been the Chief Executive Officer and President of Harley-Davidson, Inc. since May 1, 2015. Mr. Levatich served as the President and Chief Operating Officer of Harley-Davidson Motor Company, Inc. from May 1, 2009 to May 1, 2015. He served as President and Managing Director of MV Agusta, the Italian motorcycle maker that Harley-Davidson, Inc. acquired last August. While at MV, he spearheaded the restarting of MV's operations. In his 15 years at Harley-Davidson, he has held positions of increasing responsibility in the U.S. and Europe. He served as General Manager of Parts & Accessories and Custom Vehicle Operations and Vice President of Materials Management - Harley-Davidson Motor at Harley-Davidson, Inc., since November 2007 to July 2008 and October 2003 to October 2007 respectively. He joined Harley-Davidson in 1994 through its Leadership Development Program and quickly worked his way up to several senior roles within Harley-Davidson. Before that, he had managed all aspects of Harley-Davidson's global parts and accessories business after successfully leading its worldwide supply chain operations. Prior to Harley-Davidson, he held various supervising roles at Albany International in New York. He has been an Independent Director of Emerson Electric Co., since August 2012 and of Harley-Davidson, Inc. since February 4, 2015. He serves on the executive advisory board of the MMM Program at the J.L. Kellogg Graduate School of Management and Robert R. McCormick School of Engineering and Applied Sciences at Northwestern University and is a trustee on the Milwaukee Institute of Art and Design and a Regent at the Milwaukee School of Engineering (MSOE). Mr. Levatich holds an Undergraduate Degree in Mechanical Engineering from Rensselaer Polytechnic Institute. He holds ME in Engineering Management and MBA in Marketing, Finance and Organizational Behavior from Northwestern University.
- CEO's compensation has been consistent with company performance over the past year.
- CEO's compensation is higher than average for a company of this size and profit level.
Management Team Tenure
Average tenure of the Harley-Davidson management team:
- The tenure for the Harley-Davidson management team is about average.
Chief Executive Officer
Chief Financial Officer and Senior Vice President
Chief Compliance Officer
President of Harley-Davidson Financial Services and COO of Harley-Davidson Financial Services
Senior Vice President of Motor Company Product and Operations - Harley Davidson Motor Company
Chief Accounting Officer and Senior Director of Financial
Board of Directors Tenure
Average tenure of the Harley-Davidson board of directors:
- The tenure for the Harley-Davidson board of directors is about average.
Board of Directors
Chief Executive Officer
Recent Insider Trading
- More shares have been bought than sold by Harley-Davidson insiders in the past 3 months.
Who owns this company?
We assess Harley-Davidson's management by checking for:
- Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
- Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
- Is the average tenure of the management team less than 2 years? (1 check)
- Is the average tenure of the board of directors team less than 3 years? (1 check)
Harley-Davidson has a total score of 6/6, this is not included on the snowflake, see the detailed checks below.
Note: We use the top 6 management executives and board members in our calculations.
Note 2: Insider trading include any internal stakeholders and these transactions
Full details on the Management part of the Simply Wall St company analysis model.
Harley-Davidson, Inc. primarily manufactures and sells cruiser and touring motorcycles. The company operates through two segments, Motorcycles & Related Products, and Financial Services. The Motorcycles & Related Products segment designs, manufactures, and sells wholesale on-road Harley-Davidson motorcycles, as well as motorcycle parts, accessories, general merchandise, and related services. It offers motorcycle parts and accessories, such as replacement parts, and mechanical and cosmetic accessories; general merchandise, including MotorClothes apparel and riding gears; and various services to its independent dealers comprising motorcycle services, business management training programs, and customized dealer software packages. This segment also licenses the Harley-Davidson name and other trademarks. It sells its products to retail customers through a network of independent dealers, as well as ecommerce channels in the United States, Canada, Latin America, Europe, the Middle East, Africa, and the Asia-Pacific. The Financial Services segment provides wholesale and retail financing services; and insurance and insurance-related programs primarily to Harley-Davidson dealers and retail customers in the United States and Canada. This segment offers wholesale financial services, such as floorplan and open account financing of motorcycles, and motorcycle parts and accessories; and retail financing services, including installment lending for the purchase of new and used Harley-Davidson motorcycles. It also operates as an agent providing point-of-sale protection products, including motorcycle insurance, extended service contracts, credit protection, and motorcycle maintenance protection. Harley-Davidson, Inc. was founded in 1903 and is based in Milwaukee, Wisconsin.
3700 West Juneau Avenue, Milwaukee, 53208, United States
|Sector:||Automobiles and Components|