Launching New Adventure Touring Models Will Strengthen Market Position

Key Takeaways

• Harley-Davidson's market leadership and innovative product launches aim to drive sustained revenue growth, particularly in the U.S. touring segment.
  
• Strategic investments and cost initiatives could enhance margins and earnings, aiming for a double-digit operating margin in the future.
  
• Economic challenges, weak international sales, and slow EV adoption create financial pressures, while tariff uncertainties could further strain margins for Harley-Davidson.

Catalysts

Manufactures and sells motorcycles in the United States and internationally.

• Harley-Davidson is focused on maintaining and expanding its market share in the U.S. touring segment, achieving 74.5% in 2024 and planning further impactful product launches, which are expected to support revenue growth through sustained market leadership and product innovation.
  
• The company continues to invest in profitable motorcycle segments such as Adventure Touring and is introducing a new small cruiser and entry-level motorcycles in select markets. This selective expansion may drive future revenue growth and support improvement in overall earnings.
  
• Ongoing cost productivity initiatives are expected to yield $100 million in additional savings in 2025 as part of Harley-Davidson's commitment to operating expense discipline. This could improve net margins and support operating income, despite anticipated external headwinds.
  
• Harley-Davidson has implemented a Marketing Development Fund aimed at driving dealer traffic and sales conversion. This substantial marketing investment is positioned to enhance both revenue and dealer profitability, benefiting earnings over the long term.
  
• With plans to balance retail, production, and wholesale to achieve a double-digit operating margin by 2026, Harley-Davidson expects to reach its target of 15% operating margin in subsequent years from increased volume, pricing strategies, and continued productivity initiatives, impacting overall earnings positively.

Harley-Davidson Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Harley-Davidson's revenue will decrease by 7.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.8% today to 10.9% in 3 years time.
• Analysts expect earnings to reach $444.1 million (and earnings per share of $4.32) by about April 2028, down from $455.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $493.7 million in earnings, and the most bearish expecting $394.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.7x on those 2028 earnings, up from 6.9x today. This future PE is lower than the current PE for the US Auto industry at 20.2x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

Harley-Davidson Future Earnings Per Share Growth

Risks

• Cyclical headwinds for discretionary products and high interest rates are affecting consumer confidence and affordability for Harley-Davidson's customers, potentially impacting revenue and earnings.
  
• A 15% decline in global retail sales in the fourth quarter reflects challenging macroeconomic conditions, which could continue to affect Harley-Davidson's sales and margins.
  
• There are significant challenges from international markets, such as weak sales in regions like Germany, Japan, and China, which may impact overall revenue and margins.
  
• The LiveWire segment is experiencing operating losses, and while there are plans for reducing losses, the slower adoption of EVs could continue to be a financial drag.
  
• Uncertainty around tariffs and the potential for new tariffs pose a risk to cost structure and net margins, especially since Harley-Davidson's core product segments are heavily tied to U.S. manufacturing and might face international trade challenges.

Valuation

• The analysts have a consensus price target of $31.222 for Harley-Davidson based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $35.0, and the most bearish reporting a price target of just $28.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.1 billion, earnings will come to $444.1 million, and it would be trading on a PE ratio of 9.7x, assuming you use a discount rate of 11.4%.
• Given the current share price of $25.06, the analyst price target of $31.22 is 19.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.