Back to top

Image: Shutterstock

Harley-Davidson (HOG) Moving Into Top Gear: Hold the Stock

Read MoreHide Full Article

Not more than a couple of years back, Harley-Davidson (HOG - Free Report) had a challenging task ahead of itself to recover its lost glory. This iconic motorcycle maker of the United States hit its peak sales and profitability in 2014. The firm’s U.S. sales declined for the fifth consecutive year in 2019. The massive demographic shift could be blamed for the sluggish sales. Millennials overtook Boomers as the largest consuming generation. The young generation no longer seemed excited about Harley-Davidson and the business hit a level of obsolescence.

It was then that HOG started undertaking several growth initiatives to realign its business to better cater to the tastes of the Gen Z and millennials. In 2020, the company announced its turnaround plan, dubbed Rewire. One year into the critical overhaul of the business under the Rewire plan, HOG revealed its five-year strategic plan termed “Hardwire” to deliver profitable long-term growth and shareholder value.

So, has the motorcycle giant been able to rebrand itself into something millennial-friendly? Yes. The company’s turnaround plan and rebranding efforts are paying off.

Harley-Davidson’s new operating model and organizational structure have abated complexity and improved effectiveness across all functions. Putting quality over quantity, Harley-Davidson has cleared excess inventory and streamlined the model lineup by 40%, and overhauled the launch timing and go-to-market practices for maximum success. It has reset global businesses, exited unprofitable international markets and prioritized 50 markets, primarily in North America, Europe and the regions in Asia-Pacific that hold high potential.

The Hardwire strategy aims at long-term profitability and growth through refreshed product offerings. The Hardwire’s financial goals from 2021 to 2025 include mid-single-digit annual growth in revenues and a steady improvement in the operating margin from motorcycle sales as well as double-digit growth in the Financial Services segment. Per the plan, the company remains focused on bolstering its market position by putting more emphasis on sportier bikes and a modern marketing strategy.  Building on Hardwire strategy, the company announced Hardwire Stage II in May, aiming increased performance.

Harley-Davidson is focused on making investments in core segments of the Touring and heavyweight Cruiser unit. It also intends to expand into the untapped segments of Adventure Touring in a bid to become more millennial-friendly. The popularity of Grand American Touring motorcycles is boosting profits. The successful launches of Pan American and Sportster S. augur well for the firm's top-line growth.

In a bid to regain its lost market share, Harley-Davidson also launched a dedicated EV division, LiveWire. HOG’s e-motorcycle unit went public last year via a SPAC deal. Notably, the LiveWire range of e-bikes is among some of the first mass-produced battery-powered motorcycles being sold in the market. As long as the competition doesn’t get cut-throat in this space, HOG is set to benefit from its LiveWire business. The LiveWire branding will particularly help the company gain a solid foothold in a sportier market environment with its innovative and differentiated offerings.

Dedicated efforts and reinvigorating product launches have started turning the company’s fortunes around. Harley Davidson outpaced the Zacks Consensus Estimate in three of the trailing four quarters, delivering an earnings surprise of 48.27%, on average. For 2023, the company expects revenues from the motorcycles segment to grow in the band of 4%-7%.The operating income margin expectation for the motorcycles segment is in the range of 14.1% to 14.6%, higher than 13.9% in 2022.

Indeed, the uncertain macro environment and the current weakness in HOG’s Financial Services units are concerning but the company seems to be on the right track. Over the past year, shares of HOG have moved up more than 7% against the industry’s decline of 36%. And it still has a lot more upside potential. Harley-Davidson has indeed gone the extra mile to rebrand itself and has managed to evolve with the changing demographics.

It is hard not to root for a brand like HOG, as the iconic American image has so much value in itself. We don’t think it’s too early to say that it has been a turnaround success story for Harley-Davidson, and the company looks poised to achieve greater heights, going forward. 

HOG currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2 Better-Ranked Auto Stocks 

Blue Bird Corp. (BLBD - Free Report) : Headquartered in Cambridge, BLBD is engaged in the designing, engineering, manufacturing and sale of school buses and related parts. It also offers alternative fuel applications with its propane-powered and compressed natural gas-powered school buses.

The stock currently carries a Zacks Rank #2 (Buy) and has a VGM Score of B. The Zacks Consensus Estimate for Blue Bird’s fiscal 2023 earnings and sales suggests year-over-year growth of 140% and 23.7%, respectively.

Penske Automotive (PAG - Free Report) : Penske engages in the operation of automotive and commercial truck dealerships in the United States, Canada and Western Europe. It has become the largest dealership group for Freightliner in North America with the Warner Truck Centers acquisition. 

The stock currently carries a Zacks Rank #2 and has a VGM Score of B. PAG pulled off an earnings beat in the last four quarters, with the average being 11%.

See More Zacks Research for These Tickers

Normally $25 each - click below to receive one report FREE:

Harley-Davidson, Inc. (HOG) - free report >>

Penske Automotive Group, Inc. (PAG) - free report >>

Blue Bird Corporation (BLBD) - free report >>

Published in