Harley-Davidson Inc Valuation – April 2019 #HOG

Company Profile (excerpt from Reuters): Harley-Davidson, Inc., incorporated on March 8, 1991, is the parent company for the groups of companies doing business as Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). The Company operates in two segments: the Motorcycles & Related Products (Motorcycles) and the Financial Services.


Downloadable PDF version of this valuation:

ModernGraham Valuation of HOG – April 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $5,914,027,961 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.25 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 53.65% Pass
6. Moderate PEmg Ratio PEmg < 20 11.78 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.42 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.25 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.51 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail


Stage 2: Determination of Intrinsic Value

EPSmg $3.16
MG Growth Estimate -1.28%
MG Value $18.74
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $45.79
MG Value based on 0% Growth $26.84
Market Implied Growth Rate 1.64%
Current Price $37.19
% of Intrinsic Value 198.44%

Harley-Davidson Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $3.45 in 2015 to an estimated $3.16 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 1.64% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Harley-Davidson Inc revealed the company was trading above its Graham Number of $26.38. The company pays a dividend of $1.48 per share, for a yield of 4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 11.78, which was below the industry average of 22.44, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-27.04.

Harley-Davidson Inc performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$27.04
Graham Number $26.38
PEmg 11.78
Current Ratio 1.25
PB Ratio 3.42
Current Dividend $1.48
Dividend Yield 3.98%
Number of Consecutive Years of Dividend Growth 8

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $4,484,442,000
Total Current Liabilities $3,597,600,000
Long-Term Debt $4,887,667,000
Total Assets $10,665,664,000
Intangible Assets $61,046,000
Total Liabilities $8,891,715,000
Shares Outstanding (Diluted Average) 162,973,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.84
Dec2018 $3.19
Dec2017 $3.02
Dec2016 $3.83
Dec2015 $3.69
Dec2014 $3.88
Dec2013 $3.28
Dec2012 $2.72
Dec2011 $2.55
Dec2010 $0.62
Dec2009 -$0.24
Dec2008 $2.79
Dec2007 $3.74
Dec2006 $3.93
Dec2005 $3.41
Dec2004 $3.00
Dec2003 $2.50
Dec2002 $1.90
Dec2001 $1.43
Dec2000 $1.13
Dec1999 $0.86

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.16
Dec2018 $3.39
Dec2017 $3.50
Dec2016 $3.66
Dec2015 $3.45
Dec2014 $3.09
Dec2013 $2.40
Dec2012 $1.86
Dec2011 $1.59
Dec2010 $1.46
Dec2009 $2.16
Dec2008 $3.37
Dec2007 $3.54
Dec2006 $3.28
Dec2005 $2.79
Dec2004 $2.31
Dec2003 $1.83

Recommended Reading:

Other ModernGraham posts about the company

Harley-Davidson Inc Valuation – June 2018 $HOG
Harley-Davidson Inc Valuation – August 2017 $HOG
12 Best Stocks For Value Investors This Week – 7/1/16
Harley-Davidson Inc Valuation – June 2016 $HOG
19 Best Stocks For Value Investors This Week – 1/9/16

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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