Younger Riders And Global Community Engagement Will Drive A Powerful Long Term Turnaround

Catalysts

About Harley-Davidson

Harley-Davidson designs, manufactures and sells premium motorcycles and related financial services worldwide.

What are the underlying business or industry changes driving this perspective?

• Global rider community engagement, refreshed brand positioning and more playful, youth-oriented marketing are described as helping attract new, younger riders and deepen loyalty among core enthusiasts, which may support sustained unit growth and higher revenue over time.
• Expanded affordability initiatives, including lower APR financing, longer terms and new lower entry price points such as the Sprint and revised Softail lineup, may widen the addressable market and improve retail throughput, potentially contributing to top line growth and improved asset turns.
• The transformation of HDFS into a capital-light business that emphasizes recurring origination and servicing fees, together with $1.2 billion of incremental cash, may create capacity for debt reduction and share repurchases, which could affect earnings per share and return on equity.
• Ongoing productivity and cost programs targeting more than $100 million of annual savings, along with disciplined capital and inventory management, are intended to offset tariff and inflation headwinds and to enhance gross margin and operating margin.
• Innovation in core and emerging segments, including updated cruisers, touring models and the LiveWire electric platform, is intended to position Harley-Davidson to address premium demand in both internal combustion and electric categories, which may influence long term revenue trends and margin mix.

Assumptions

This narrative explores a more optimistic perspective on Harley-Davidson compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Harley-Davidson's revenue will decrease by 6.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 10.7% today to 8.8% in 3 years time.
• The bullish analysts expect earnings to reach $338.5 million (and earnings per share of $4.11) by about December 2028, down from $501.1 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $194.2 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 13.6x on those 2028 earnings, up from 5.3x today. This future PE is lower than the current PE for the US Auto industry at 20.1x.
• The bullish analysts expect the number of shares outstanding to decline by 5.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.5%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent demographic headwinds and an aging core rider base may limit Harley-Davidson's ability to attract enough younger riders, even with more playful marketing and new entry models, which could constrain long term unit demand and revenue growth.
• Ongoing affordability pressures from high interest rates, inflation and consumer trade down behavior, despite lower APRs and longer terms, may force deeper or prolonged promotions and discounting, putting sustained pressure on pricing power and net margins.
• Global softness in retail demand, particularly in key international regions like EMEA and APAC where volumes are already declining, combined with intense competition in lightweight segments, could cap international expansion and weigh on consolidated revenue and earnings.
• Structural cost headwinds from tariffs, modest but persistent cost inflation and potentially unfavorable foreign currency movements could more than offset planned productivity gains, limiting the company’s ability to improve gross margin and operating margin over time.
• The shift of HDFS to a capital light, fee based model and the sale of a minority equity stake, while freeing cash in the near term, may result in structurally lower net interest income and greater earnings volatility if origination and servicing fees do not scale as expected, which could dampen long term earnings and return on equity.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Harley-Davidson is $32.0, which represents up to two standard deviations above the consensus price target of $27.6. This valuation is based on what can be assumed as the expectations of Harley-Davidson's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $32.0, and the most bearish reporting a price target of just $21.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $3.9 billion, earnings will come to $338.5 million, and it would be trading on a PE ratio of 13.6x, assuming you use a discount rate of 12.5%.
  
• Given the current share price of $22.44, the analyst price target of $32.0 is 29.9% higher. Despite analysts expecting the underlying business to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.