By Michael Elkins
Morgan Stanley upgraded Harley-Davidson Inc (NYSE:HOG) to an Overweight rating (From Equal Weight) and reiterated a $50.00 price target for the stock. Analysts recently spent a full day with management in Milwaukee and have increased conviction in Chairman and CEO Jochen Zeitz’s focus on generating cash flow from the core motorcycle business while judiciously managing the risks of the LVWR business.
Taking over as CEO at the start of COVID, Jochen Zeitz used the crisis to drive improved efficiency in the HOG business model, including rationalizing product lines, consolidating the dealer network, concentrating growth initiatives, and carving out the LiveWire business.
In addition to HOG management’s strategic direction, analysts also note the team’s incentives and compensation packages, which are aligned with long-term value creation and only start to kick in at a $70 stock price by 2025.
They wrote in a note, “We upgrade HOG to OW on confidence in the Hardwire strategy, ‘containment’ of electrification risks and attractive valuation.”
As a result of analysts’ belief in the company, Morgan Stanley increased its EBIT margin assumption to 13.3%, from 13.0% for FY26 and beyond. Morgan Stanley has also allowed for marginally increased credit losses from Harley Davidson’s captive finco, coming in below the low-end of management guide this year. They adjusted FY23e and FY24e down while leaving FY25e mostly unchanged.
U.S. Shipment estimates were also reduced, and operating income margins were cut to 13.9%, from 14.5% to reflect macroeconomic headwinds. Margin comes slightly below company guidance of 14.1% to 14.6%, and above FY22 (12.6%).
Shares of HOG are up 3.81% in pre-market trading on Tuesday.
