Harley Davidson Inc. Quarterly Valuation – December 2014 $HOG

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Harley Davidson fares quite well in the ModernGraham model, and is suitable for Enterprising Investors. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth or stability over the last ten years, and the high PEmg and PB ratios, while the Enterprising Investor is only initially concerned by the level of debt relative to the net current assets. As a result, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $1.46 in 2010 to an estimated $3.06 for 2014. This is a fairly strong level of demonstrated growth which is well above the market’s implied estimate for 6.33% earnings growth over the next 7-10 years. Here, the historical growth in EPSmg over the last five years is around 21.93% per year, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but it may be unrealistic that the company would see such a significant slowdown in growth over the long term. Therefore, the model returns an estimate of intrinsic value above the current price, indicating the company is significantly undervalued at the present time.

Be sure to check out previous ModernGraham valuations of Harley Davidson Inc. for greater perspective!

Read the full valuation on Seeking Alpha!

HOG Chart

HOG data by YCharts

Disclaimer:  The author did not hold a position in Harley Davidson Inc. (HOG) at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.


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