Most of Harley-Davidson Inc HOG's Q1 earnings beat can be explained by the company bumping back marketing costs to Q2. However, at 10.6x earnings, Deutsche Bank analyst Rod Lache believes there is still a bull case for the stock.
Harley reported Q1 earnings of $1.36, well ahead of consensus expectations of $1.29. Management indicated that the company pushed certain marketing plans from Q1 to Q2, resulting in a $0.10 earnings boost last quarter.
In addition, the company’s motorcycle EBIT declined from $345.5 million to $332.5 million year-over-year and margins declined from 22.9 percent to 21.1 percent. The company admitted that pricing pressures from competition were partly to blame.
Harley's U.S. market share also declined from 51.3 percent to 50.9 percent year-over-year.
Despite the number of headwinds, Lache believes bulls have a strong case at the current share price.
The Bull Case On The Hog
He sees six arguments that Harley bulls can make:
- 1. Stabilization in core segments
- 2. International revenue growth
- 3. A weakening U.S. dollar
- 4. A number of potential margin drivers
- 5. A 10.6x 2017 earnings multiple
- 6. No need for discounting
Deutsche Bank maintains a Hold rating on Harley-Davidson and a $47 price target. The price target is based on DCF analysis and a 2017 PE of 11x.
Disclosure: The author holds no position in the stocks mentioned.
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