The Road Ahead For Touring Motorcycles And Financial Efficiency Boosts Market Outlook

Key Takeaways

• Strong marketing strategy and innovative motorcycle launches are expected to boost revenue and market share.
  
• Focus on cost control and operational efficiency aims to enhance profitability and drive earnings growth.
  
• Declining motorcycle sales, revised outlooks, and EV losses pose profitability and revenue challenges amid economic uncertainty and high interest rates.

Catalysts

Manufactures and sells motorcycles in the United States and internationally.

• Harley-Davidson plans a strong marketing push in collaboration with its dealer network for the 2025 model year, which is expected to enhance retail demand and revenue growth.
  
• The launch of highly differentiated Touring motorcycles, along with innovations in the pipeline, positions Harley-Davidson for future sales success, potentially improving revenue and market share.
  
• Harley-Davidson Financial Services (HDFS) plans to support dealers and customers more effectively, which may enhance earnings through increased finance receivables and improved margin performance.
  
• Cost control measures and productivity improvements, including a 40% reduction in cash burn at LiveWire and a focus on operational efficiency, are anticipated to support improvements in net margins and profitability.
  
• The commitment to achieving a 15% operating income margin by 2025 through cost productivity programs and production alignment is expected to drive earnings growth and operational efficiency.

Harley-Davidson Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Harley-Davidson's revenue will decrease by -6.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.8% today to 13.4% in 3 years time.
• Analysts expect earnings to reach $614.1 million (and earnings per share of $5.19) by about November 2027, up from $598.1 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $481.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.8x on those 2027 earnings, up from 6.8x today. This future PE is lower than the current PE for the US Auto industry at 15.8x.
• Analysts expect the number of shares outstanding to decline by 2.39% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.86%, as per the Simply Wall St company report.

Harley-Davidson Future Earnings Per Share Growth

Risks

• The 13% decline in global retail sales of new motorcycles in Q3, driven by macroeconomic and political uncertainty and high interest rates, could negatively impact future revenue and profit margins.
  
• Lower-than-expected retail demand, leading to a downward revision of the full year '24 outlook, suggests potential revenue challenges and weaker earnings growth than anticipated.
  
• The significant decrease in HDMC revenue by 32% and a consolidated operating income drop by 49% in Q3 indicate strain on profitability and revenue generation.
  
• Large reductions in wholesale shipments and dealer inventory adjustments, despite being strategies to manage supply, suggest potential revenue pressure and margin challenges going forward if retail demand does not recover.
  
• The ongoing operating loss from LiveWire and the need to reduce cash burn by 40% highlight continued challenges in the EV market, impacting operational financials if not resolved.

Valuation

• The analysts have a consensus price target of $37.61 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 $40.0, and the most bearish reporting a price target of just $31.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $4.6 billion, earnings will come to $614.1 million, and it would be trading on a PE ratio of 9.8x, assuming you use a discount rate of 10.9%.
  
• Given the current share price of $31.92, the analyst's price target of $37.61 is 15.1% 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.