On Tuesday, Morgan Stanley initiated coverage on shares of Harley-Davidson (NYSE:HOG) with an Overweight rating and a price target of $50.00. The firm highlighted the motorcycle manufacturer's status as an iconic brand with a strong market presence and a dedicated customer base in the United States.
According to the firm, Harley-Davidson's recent turnaround efforts under new management are beginning to bear fruit, citing improvements stemming from restructuring initiatives and an innovative approach to its core product lineup, with a heightened focus on profitability.
The analyst at Morgan Stanley expressed confidence in Harley-Davidson's strategy and capital allocation discipline, suggesting that these factors could lead to earnings surpassing consensus estimates.
The firm also found the company's valuation compelling, noting it is trading at less than 9 times its forecasted FY24 price-to-earnings ratio, compared to the historical average of approximately 10.5 times. Additionally, the firm pointed out Harley-Davidson's approximately 11% free cash flow yield as a positive indicator.
While acknowledging potential challenges in 2024, Morgan Stanley anticipates that Harley-Davidson will return to growth in 2025. The firm's projection includes an estimated 11% growth in earnings per share for the year, reaching around $5.00.
This outlook is based on the belief that the current valuation does not fully reflect the company's growth potential as forecasted for 2025. The Overweight rating from Morgan Stanley reflects an upgrade in the investment firm's view of Harley-Davidson's stock potential.
InvestingPro Insights
As Morgan Stanley initiates coverage on Harley-Davidson with an optimistic outlook, real-time data and insights from InvestingPro further enrich the investment thesis. Harley-Davidson's management has been proactive, as indicated by aggressive share buybacks, underscoring their confidence in the company's value. Moreover, the company's dedication to shareholder returns is evident, with a track record of raising its dividend for three consecutive years and maintaining dividend payments for an impressive 32 consecutive years.
From a valuation standpoint, Harley-Davidson's current P/E ratio stands at a favorable 7.9, with an adjusted P/E ratio for the last twelve months as of Q4 2023 at 7.42, signaling the stock might be undervalued compared to industry peers. The company's solid financial footing is also highlighted by a revenue growth of 1.41% over the last twelve months, despite a quarterly dip, and a robust gross profit margin of 30.61%. Furthermore, with a dividend yield of 1.77% and a significant price uptick of 32.18% over the last six months, the company shows strong performance and investor optimism.
Investors looking to delve deeper into Harley-Davidson's prospects can find additional insights on InvestingPro, where there are 9 more InvestingPro Tips available, offering a comprehensive analysis of the company's financial health and future potential. To access these insights, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, helping to make informed investment decisions with the latest data and expert analysis.
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