Harley-Davidson (HOG) is arguably the most iconic American motorcycle brand, recognizable globally.
Despite its fantastic brand, the company has been facing hurdles over the years, despite decent profits coming in. For this reason, I am neutral on the stock. (See HOG stock charts on TipRanks)
Thin Future Prospects
Harley-Davidson (NYSE:HOG)'s future prospects seem to be thin, with the company facing multiple challenges, including decreasing shipments in domestic markets due to an aging customer base, and little to no margins to push its pricing higher.
This is clearly evident in its revenues, which have been declining consistently from 2014, and currently hover at the same levels they did nearly 20 years ago.
The trend around motorcycles has certainly faded from its past highs a couple of decades ago, and Harley-Davidson's products seem to be facing stagnated, if not declining, demand.
A look at the company's 10-Ks over the past few years reveals that both U.S. and international shipments have been decreasing with no rest. In 2018, 2019, and 2020, U.S. deliveries amounted to 132,400, 124,300, and 79,700.
International shipments amounted to 96,200, 89,600, and 65,500 during these years, also declining year-over-year.
Not as Cheap as It Seems
Harley-Davison is currently trading with a forward P/E of around 11.2 attached. While this multiple may seem low, it actually isn't.
Along with its revenues, profitability has also stagnated for the company. Sure, net income rebounded strongly in the past couple of quarters as the company emerged from the pandemic, but net income has clearly struggled to grow over the years, similarly to total sales.
It's also worth noting that Harley-Davidson's future profitability is heavily reliant on the company's ability to maintain its current margins. Margins have recently recovered due to the company's cost-cutting initiatives.
However, with motorcycle deliveries on a long-term decline, margins are likely to compress further if production slows down. Hence, the forward P/E the stock currently trades at could be relatively misleading, as Harley-Davidson's current net income levels are likely not sustainable.
The company is becoming more and more indebted over time. Harley-Davidson's net debt currently sits at $6.14 billion, featuring a worrying long-term/equity ratio of 218.2%.
The company essentially suspended its dividend in the midst of the pandemic, and while it has now resumed to a quarterly rate of $0.15, the current yield of around 1.2% can hardly compensate investors for the risks involved.
Wall Street’s Take
Turning to Wall Street, Harley-Davidson has a Hold consensus rating, based on three Buys, three Holds, and two Sells assigned in the past three months. At $46.67, the average HOG price target implies 23.6% upside potential.
Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.
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