Harley-Davidson Inc.HOG

Morningstar Rating

Stock Research and Analysis

by Philip Gorham, CFA

Brand strength and a dominant market position give Harley-Davidson a wide economic moat, in our opinion. However, weaker consumer spending and tight credit markets are presenting the firm with some significant near-term challenges. In addition, we believe Read more

Bulls Say

Harley-Davidson's brand resonates around the world, and it has particular strength in its key target market of 35- to 54-year-olds.

Historically, Harley has generated free cash flow at around 15% of revenue, allowing the firm to develop a strong record of returning cash to shareholders through dividends and stock repurchases.

Through the downturn, Harley's management has been careful to maintain spending on research and development and marketing, important steps in maintaining the strength of the brand, in our opinion.

The firm has worked successfully with its network of dealers to significantly reduce dealer inventory during the past 12 months.

We see Harley's sale of $600 million of notes as a vote of confidence in the firm, albeit an expensive one at a 15% interest rate. Read more

Bears Say

Harley's core demographic, the baby boomer generation, is aging, and that's likely to reduce demand for Harley's products in the future. To mitigate the negative impact on revenue, the firm must improve its penetration in other segments.

Harley is likely to continue to face some severe short-term head winds, with anemic consumer spending likely to hurt revenue through 2010.

The large inventory of used Harley motorcycles is likely to contribute to the firm's near-term challenges, as a greater number of under-pressure consumers may opt for cheaper, used models in the secondary market.

HDFS may still find it difficult to raise financing for retail credit in the wholesale markets. This could raise the cost of financing and restrict the number of loans the firm can make to customers, thus thwarting the firm's attempts to support retail sales volume.

The firm slashed its dividend at the end of the first quarter of 2009, and at this point, it is not clear if the dividend payment will be restored. Read more

Strategy

Harley leverages its strong brand to sell a broad range of motorcycling-related products. The firm is attempting to broaden its appeal to more demographic groups by expanding its product lineup. It is Read more

Management

We think the quality of corporate governance at Harley-Davidson is good. We applaud the firm for splitting the chairman and CEO roles between two individuals. Keith E. Wandell became CEO after the retirement of James Ziemer on May 1, 2009. Wandell is Read more

Profile

Harley-Davidson is the world's leading manufacturer of heavyweight motorcycles, parts, and accessories. It sells the Softail, Sportster, Dyna, Touring, and VRSC models under Read more

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