Harley-Davidson: Undervalued With 24% Upside – Seeking Alpha

25 February 2016 | 6:23 pm

Following on from our article about Tiffany and Co. (NYSE:TIF) we now turn our attention to another of America’s most iconic companies. This time, however, there are no little blue boxes tied tightly with a ribbon. This time there’s almost 700 pounds of metal, leather, and rubber sculpted to perfection. This is Harley-Davidson (NYSE:HOG) and its Fat Boy motorcycle.

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Unlike Tiffany and Co., which has managed to continue growing its top line despite the strong US dollar, Harley-Davidson has really struggled with it. It wasn’t surprising then to see the company report disappointing full year results recently which saw revenue drop 4% to $6 billion and earnings per share down by 5% to $3.69.

Harley-Davidson and Tiffany and Co. do share one thing in common. They both do business on the premium side of the market and discounting their products does risk damaging the brand. This certainly put Harley-Davidson in an awkward position as their competitors undercut them.

But we are confident the turnaround is coming and the company will start to see earnings grow soon. This is much needed because at present revenue has been stuck in a rut, as you can see on the chart below.

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So what will be the catalyst to this change, I hear you ask. Well, let’s get one thing out of the way first. It won’t be a weaker US dollar. While that could prove to be a major tailwind in the future, for now it shows no sign of weakening. In fact, it could yet get worse before it gets better should Janet Yellen eventually raise interest rates. The catalysts we see are the release of several new 2016 models which have done well in the initial rollout. These models include two S models, the Road Glide Ultra, the Forty-Eight, and the Iron 883. We feel each of these bikes has something different to offer consumers, and should sell very well.

But you can’t just release new bikes and expect that to be it. Thankfully Harley-Davidson has more up its sleeve. It is attempting to…

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