Why Stifel Is Initiating Harley-Davidson At Buy

In a report issued Wednesday, Stifel analysts Drew Crum and David Pang initiated coverage on shares of

with a Buy rating and $75 price target. Their optimism is based on the premise that the company can "continue to drive solid motorcycle sales growth, through product innovation, international expansion, and an enhanced focus on consumer preference: outreach, international expansion, and the Street series, are examples. If successful, this should yield attractive returns including a favorable NOPAT ROIC: WACC spread, and support the company's capital deployment strategy (i.e., dividends + share buybacks)." According to the specialists, valuations are reasonable, and even discounted in relation to its peers, going forward. Stifel sees improving macro trends driving increased usage and consumption of leisure products like Harley's motorcycles. In addition to maintained pricing leverage, they think that there is further potential for gross and operating profit margins upside, over the medium term. Over the longer term, they believe the margins could return to the peak levels reached in the mid-2000s. The firm expects EPS of $4.80 for 2016, and $5.45 for 2017; both estimates surpass consensus. However, for 2015, they forecast EPS of $4.15 (vs. Street at $4.24), as they believe FX could still be a source for further downside, although this does not affect their investment thesis over a longer-term horizon.