We have reiterated our “Outperform” recommendation on Harley-Davidson Inc. (HOG) for the long term as the company continues to benefit from its brand value, which helps it occupy the major market share in the U.S. motorcycle market. Besides, the company looks forward to increasing its shipments of motorcycles in the range of 245,000 to 250,000 units in the full year 2012.
Harley-Davidson commands about 50% of market share in the U.S. market. The company possesses a strong network with a total of 1,468 dealers spread across the U.S., Canada, Asia Pacific, Latin America and the EMEA region. Among these dealers, about 55% exclusively sells Harley-Davidson products.
Harley-Davidson has undertaken restructuring activities since 2009. Over the years, the activities led the company to achieve cumulative savings from $172 million in 2010 to $217 million in 2011. Further, it expects to realize cumulative savings within the range of $275 million to $295 million in 2012. This will rise to $315 million–$335 million after completion of the restructuring activities in 2014.
However, Harley-Davidson faces an aging customer base. Young people, who are more interested in smaller and cheaper bikes, such as those manufactured by Japanese manufacturers including Honda Motor Co. (HMC), Suzuki and Yamaha,are not particularly attracted by the expensive and heavy-weight Harley-Davidson products.
Harley- Davidson recorded a 44% rise in profits to $172.0 million in the first quarter of 2012 from $119.3 million in the same quarter of prior year. Earnings per share were 71 cents in the quarter, up 45% from 51 cents recorded in the year ago quarter. With this, it surpassed the Zacks Consensus Estimate by 3 cents per share.
Total revenue escalated 17% to $1.4 billion. The increase in revenues and earnings was attributable to a rise in motorcycle production and related product sales due to improved macroeconomic conditions in the U.S.
Milwaukee-Wisconsin based Harley-Davidson, is the world’s leading designer and manufacturer of heavyweight motorcycles and related products and merchandise. The company undertakes business under Motorcycles and Related Products (consisting of 88% of total revenue in 2011) and Harley-Davidson Financial Services or HDFS (12%).
Our long-term recommendation is backed by a Zacks #1 Rank on the stock, which translates into a short-term (1 to 3 months) “Strong Buy” rating.
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