HDFS Partnership And Affordable Models Will Redefine Future Markets

Key Takeaways

• Strategic partnerships and operational efficiencies enable increased investments, brand revitalization, and financial flexibility to support both short-term profitability and long-term growth initiatives.
  
• Expansion into affordable, smaller motorcycles and targeted global marketing aims to attract younger buyers and diversify revenue by adapting to evolving consumer trends.
  
• Weak demand, reliance on aging customer base, tariff risks, slow EV adoption, and macroeconomic pressures threaten Harley-Davidson's revenue growth and profitability.

Catalysts

Manufactures and sells motorcycles in the United States and internationally.

• The new partnership in HDFS unlocks significant cash ($1.25B) and reduces leverage, enabling accelerated share buybacks and freeing up $300M for growth investments, which can directly bolster EPS and future revenue streams through both financial engineering and new business initiatives.
  
• Harley-Davidson's entrance into the lower-priced, small displacement motorcycle segment, with a new model targeting a sub-$6,000 entry price and profitable unit economics, positions the company to capture emerging growth in affordability-driven motorcycle demand and reach new, younger buyer segments, supporting long-term revenue growth and market share expansion.
  
• Expanded focus on brand revitalization-including new entry-level products, refreshed core models, targeted marketing efforts, and global racing initiatives-directly addresses both aging demographics and shifting consumer preferences toward experiences and authenticity, potentially driving higher customer engagement, repeat purchases, and top-line growth.
  
• Growing global participation in leisure/experiential activities and the rise of aspirational consumption as disposable incomes increase-particularly among aging, affluent populations and in emerging markets-support sustained demand and premium pricing for Harley-Davidson's core offerings, with positive implications for revenue and pricing power.
  
• Ongoing cost rationalization and new efficiency programs, including the use of AI technology, together with an asset-light HDFS model and supply chain initiatives, are expected to yield substantial long-term improvements in operating margins and net earnings, as evidenced by ongoing productivity gains and targeted savings commitments.

Harley-Davidson Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Harley-Davidson's revenue will decrease by 4.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.4% today to 10.0% in 3 years time.
• Analysts expect earnings to reach $390.5 million (and earnings per share of $4.36) by about September 2028, up from $242.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.2x on those 2028 earnings, down from 15.5x today. This future PE is lower than the current PE for the US Auto industry at 18.6x.
• Analysts expect the number of shares outstanding to decline by 4.53% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

Harley-Davidson Future Earnings Per Share Growth

Risks

• Declining global motorcycle retail sales (-15% YoY in Q2) and persistently weak consumer demand, especially in North America and Asia-Pacific due to higher interest rates, intense competition, and macroeconomic uncertainty, may continue to pressure Harley-Davidson's core revenue growth.
  
• Increased reliance on bigger models (Touring and heavyweight cruisers) leaves Harley-Davidson vulnerable to changing consumer preferences, affordability issues, and an aging core customer base, risking long-term unit sales and overall top-line growth.
  
• The uncertain and volatile global tariff environment, with direct costs estimated between $50 million and $85 million for 2025 and potential for further increases, could erode gross and operating margins over time, especially if mitigation efforts or favorable trade agreements falter.
  
• Electric motorcycle (LiveWire) sales remain minimal (only 55 units sold in Q2 compared to 158 YoY), despite ongoing investments, indicating slow progress in capturing EV market share and raising concern that Harley-Davidson will struggle to offset internal combustion declines, pressuring future earnings and margins.
  
• Ongoing macro headwinds-including elevated interest rates, persistent inflation, and tightening discretionary spending-are leading customers to delay or forgo big-ticket purchases, which is likely to negatively impact both short-term revenues and longer-term profitability.

Valuation

• The analysts have a consensus price target of $29.333 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 $34.0, and the most bearish reporting a price target of just $27.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.9 billion, earnings will come to $390.5 million, and it would be trading on a PE ratio of 11.2x, assuming you use a discount rate of 12.3%.
• Given the current share price of $30.98, the analyst price target of $29.33 is 5.6% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.