Harley Davidson (HOG) is the iconic American motor cycle manufacturer. It is more than a brand in many ways - many people tattoo HOG on their bodies. It is difficult to find many companies that people are willing to tattoo on their bodies. Of late, HOG stock price has declined because of stagnant or slightly declining year over year sales. Let us analyze the stock in further detail in the rest of this blog. HOG embodies a lifestyle and in some sense beyond a brand.
HOG has a P/E of ~12 and price to cash flow of about 13. Price to book value is about 4. The dividend yield for the stock is about 2%. While the stock is undoubtedly cheap as it is very difficult to replicate the Harley brand for the market cap of the company which is about 13 billion. While the intangibles add significantly to Harley's book value, let us see if the company is a buy at the current prices.
First let us analyze Harley. The number of outstanding shares has been declining by about 1.6% per year for the last ten years. The EPS has grown by about 20% per year for the past ten years - which is clearly not sustainable.
Let us look at the cash flows and return on equity to see how HOG looks like from this perspective. The cash flow from operations for the last five years have been respectively - 936, 970, 960, 762 and 998 million dollars respectively. The free cash flow has varied from 708 million to 782 million respectively. The return on equity has varied from 29% to 39% of late.
The company's YoY sales in the US has declined by about 5% and the company is hoping to expand internationally further. Like other consumer staples such as Coke and Pepsi, HOG will probably see more revenue and profits internationally in the future.
The stock looks cheap compared to its historic P/E of about 19. Even given the stagnant cash flows, the company is returning money to the share holders in the form of dividends and share buy backs. HOG is a good long term buy but may not see immediate upside.