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Harley-Davidson Earnings Preview and Ways to Play


Harley-Davidson motorcycles are considered luxury items, so continued strength despite the economic climate could be a good sign for both the company and the U.S. economy.

Harley-Davidson (HOG) is expected to report its third straight quarterly rise in sales when it shares its third-quarter 2011 results tomorrow, October 18, before the opening bell. The Milwaukee-based company saw domestic retail sales rise in the second quarter for the first time in five years. Harley-Davidson motorcycles are considered luxury items, so continued strength despite the economic climate could be a good sign for both the company and the U.S. economy.

Analysts on average predict that Harley-Davidson will report earnings of $0.76 per share, up 47.4% from the same quarter of last year. That EPS estimate was $0.65 per share 90 days ago. And note that earnings results were better than expected in five of the past six quarters.

The forecast also calls for the company to post revenues of $1.3 billion, which would be an 18.8% increase from a year ago. Looking ahead to the current quarter, which will include the holiday season, analysts so far are looking for 10.1% year-over-year growth in revenues. And the forecast for the full year so far calls for revenues up 12.6% from a year ago, with per-share earnings 52.9% higher.

The Company

Harley-Davidson produces and sells heavyweight touring, custom and performance motorcycles, as well as parts, accessories, and related services. The company operates in two segments: Motorcycles and Related Products, and Financial Services. Harley-Davidson was founded in 1903, is an S&P 500 component and has a market cap of $8.9 billion.

During the three months that ended in September, the company introduced two new models, raised its shipment estimates, lobbied to tear down obstacles to sales in China, and renewed its sponsorship of Ultimate Fighting Championship. More recently, it opened its new Latin America headquarters in Miami.


The company has a long-term earnings per share growth forecast of 15.4%, its PEG ratio is 0.7 and its return of equity is 15.5%. The dividend yield is 1.3%. While the P/E ratio is higher than the industry average, so is the operating margin. Nine of 17 analysts following the stock rate it a Buy or Strong Buy; none recommend selling. They have a mean price target of $45.38 per share.

At $37.87, the share price jumped more than 13% in the past week from near the 52-week low to approaching the 200-day moving average. The share price is down about 8% from three months ago, but still more than 10% higher year to date. The stock's performance has been largely inline the broader markets over the past six months.

Action Items:

Bullish: Investors interested in exchange traded funds invested in Harley-Davidson might want to consider the following trades:
  • SPDR S&P 500 (SPY) is about 6% higher than a week ago.
  • iShares S&P 500 Index (IVV) is about 6% higher than a week ago.
  • iShares Russell Midcap Growth Index (IWP) is more than 7% higher than a week ago.
  • Consumer Discretionary Select Sector SPDR (XLY) is more than 6% higher than a week ago.
Bearish: Traders may want to consider these alternative positions:
  • ProShares UltraShort Russell MidCap Growth (SDK) is more than 7% higher than three months ago.
  • Direxion Daily Mid Cap Bear 3X Shares (MWN) is more than 6% higher than three months ago.

Editor's Note: This content was originally published on by Nelson Hem.

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