My Disclaimer
I could waste a lot of your time with graphs, charts, and other assorted worthless information all intended to show you that I know something about something when it comes to this company. But the truth is, I know very little about this company. I can tell you that I am not a shareholder and I can also tell you that I am a value investor focusing on picks and shovels type companies.

My intent with this post is to provide you with a brief overview of my various valuations for the company, all based on the company’s most recent 10-K filing, so you can determine if you have any investment interest.

Past and future gains contained in this post are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Valuations, while given as a specific amount, are always within a valuation range. Investors should always be aware that any investment has the potential for loss, and past performance is no guarantee of future results.

What They Do
Harley-Davidson is the parent company for the groups of companies doing business as Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). The Motorcycles segment consists of HDMC which designs, manufactures and sells at wholesale on-road Harley-Davidson motorcycles as well as motorcycle parts, accessories, general merchandise and related services. The Financial Services segment consists of HDFS which provides wholesale and retail financing and insurance and insurance-related programs primarily to Harley-Davidson dealers and their retail customers. Industry peers include Triumph Motorcycles Ltd, Ultra Motorcycle Company, and Viper Motorcycle Company.

Short-Term Target
My current short-term target for the stock is $38.84, with an initial trailing stop set at $34.92. Based on a recent price of $35.45, upward price movement will find resistance at $36.52 and again at $37.40, with final resistance found at $40.05. Downward price movement will find support at $34.31 and again at $33.33, with final support found at $32.72.

Volatility
There are many different assorted metrics available to help investors determine the theoretical volatility of a stock as compared to the volatility of the entire market. To me, the beta ratio is the metric that is the most representative a stock’s volatility. The beta ratio for this stock is 1.26, meaning this stock, will move 26% higher or lower than the overall movement of the market.

Quality of Earnings
A company’s earnings can be impacted by sources unrelated to the company’s day to day operations. These unrelated sources will distort a company’s earnings and consequently its fair value. Investors should always explore the sources of a company’s earnings to better understand potential valuation impacts. Considering the company’s earnings, 0% came from tax benefits while 0% came from sources unrelated to day to day operations.

Momentum Target
My momentum target for the stock is $77. Momentum targets are determined by integrating a company’s most recent annual EPS and year-over-year earnings growth, with the current yield of a 10-year treasury. Momentum investing often requires investors to trade in stocks that have already enjoyed significant gains while making no allowances for overall market corrections or the sustainability of a company’s earnings.

Growth Target
My growth target for the stock is $49. Growth targets are determined using a company’s year-over-year earnings growth, year-over-year PE growth, and year-over-year price growth.

Five Year Growth of $10K
If you had invested $10K in this stock five years ago (12/30/13), you would have received 156.76 shares of stock with a cost basis of $63.79 per share. Had you held the stock for five years and then closed your position (12/31/2018), you would have closed at $34.12 per share. During that holding period you would have collected $217.92 in dividends, and your initial $10K investment would have returned to you $5,349 a loss of 47%, excluding dividends.

Insider Transactions
The SEC classifies insiders as “management, officers or any beneficial owners with more than 10% class of a company’s security.” Insiders are required to abide by certain rules and fill out SEC forms every time they buy or sell company shares. In addition, to prevent insider trading, or benefiting illegally from material non-public information that their positions give them access to, the law prevents insiders from deposing of shares within six months of their purchase. This effectively bars insiders from profiting from quick trades based on their “insider” knowledge.

Over the past 12 months, the company has recorded 40 insider trades involving 389,376 shares of stock. Of those 40 insider trades, 20 were Buys involving 251,581 shares of stock, and 20 were Sells involving 137,795 shares of stock, creating an insider buy to sell ratio of roughly 2 to 1.

Prior Average Valuations
My average valuation for the prior five year period of FY 2014 through FY 2018 was $46. The stock price during that time period averaged $55, earnings averaged $3.66 per share, and the average PE Ratio was 15. The current PE Ratio is 9.

Cost of Common Equity
The cost of common equity is the minimum annual rate of return an investor should expect to earn when investing in shares of a particular company. I calculate this by adding the thirty-year treasury yield to the beta ratio for the stock multiplied by my default equity risk premium. My cost of common equity for this stock is 6.32%.

Fair Value Investing
Fair value investing, more commonly known as value investing, requires investors to consider a company’s overall financial condition including past and future earnings growth, free cash flow, both book and tangible book values, net current asset value, and many other valuation metrics. My fair value estimate for the stock is $55 and my target prices are derivatives of my fair value estimate.

Harley-Davidson, Inc. (NYSE: HOG) – FYE 12/2018 – FAIRLY VALUED – The stock is currently trading at levels above my most recent $33 initiate target, but below my most recent $89 reduce target. Please See Linked PDF Worksheet

There you are, short and to the point.

Wax
Posted on 07/10/19