Harley Davidson Inc

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Dec 4, 2017 - ... has sold custom, cruiser and touring motorcycles, spare parts, ..... Borgwarner Inc, Goodyear Tire, Thor Industries, Gentex Corp, Dana Inc, Lci ...
Harley Davidson Inc December 2017 Ciro Donald Esposito [email protected] https://www.linkedin.com/in/cirodonaldesposito/ https://www.researchgate.net/profile/Ciro_Donald_Esposito

Table of contents 1. Company overview 1.1 Retail sales _____________________________________________________________________ 3 1.2 Market share ____________________________________________________________________ 3 1.3 Dealerships _____________________________________________________________________ 4

2. Stock analysis 2.1 Price and volatility _________________________________________________________________ 5 2.2 Technical analysis 2.2.1 Moving average ____________________________________________________ 7 2.2.2 Relative Strength Index ______________________________________________ 8 2.3 Earnings per share ________________________________________________________________ 8 2.4 Dividend per share ________________________________________________________________ 9 2.5 Intrinsic value 2.5.1 Dividend Discount Model ___________________________________________ 10 2.5.2 Residual Income Model ____________________________________________ 10 2.5.3 Discounted Cash Flow _____________________________________________ 10 2.6 Sales walking ___________________________________________________________________ 12 2.7 Multiples 2.7.1 Price multiples ____________________________________________________ 12 2.7.2 Enterprise Value multiples ___________________________________________ 14 2.8 Portfolio theory __________________________________________________________________ 16

3. Conclusions _______________________________________________________________________ 18

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Company overview « We fulfill dreams of personal freedom – it’s our purpose, and we take it seriously. And while freedom means different things to different people, it’s a bond that brings Harley-Davidson customers, employees, dealers, suppliers and enthusiasts together. » Harley-Davidson is an American motorcycle manufacturer founded in Milwaukee, Wisconsin, in 1903 by William Sylvester Harley, Arthur and Walter Davidson. Harley-Davidson Inc is the parent company of Harley-Davidson Motor Company and Harley-Davidson Financial Services. Since origin, Harley-Davidson Motor Company has sold custom, cruiser and touring motorcycles, spare parts, accessories and clothing. Harley-Davidson Financial Services provides wholesale and retail financing, insurance, credit card programs, extended service and other protection plans to its dealers and customers.

Retail sales Exhibit 1 shows the percentage change in the worldwide retail sales of Harley-Davidson motorcycles quarterly, by comparing every quarter with the quarter of the year before. H-D total retail sales are decreasing very clearly, driven by the drop in the U.S. retail sales that represent 62% of worldwide retail sales in 2016 (78% in 2006). In the last three quarters the decrease strengthened due to a lighter weakening also in the international retail sales. The reduction is overall continuous from 2014, but in reality, Harley never recovered from the financial crisis that had to face in 2010: the domestic retail sales were about halved in relation to 2006 and the brand burned $3,272 billion. In fact, the amount of total retail sales never returned to the splendor of 2006, instead it is coming down to the black 2010. Exhibit 1: Harley-Davidson total retail sales are decreasing very clearly.

Harley-Davidson Worldwide Retail Sales 2,0% 0,0% -2,0%

Q317 Q217 Q117 Q416 Q316 Q216

Q116

Q415

Q315

Q215

Q115

-4,0% -6,0% -8,0%

Market share From 2007, Harley is the number-one seller of new on-road motorcycles in the U.S. to young adults ages 18-34, African Americans, Hispanics, Caucasian women and men 35-plus. 3

In 2008, H-D had a market share of 31 percent for young adults 18-34 age group, 47,9 percent for Caucasian women 35-plus, 35,2 percent for African Americans 35-plus, 45,4 percent for Caucasian men 35-plus and 42,4 percent for Hispanics. In 2016, Harley-Davidson increased its market share in all classes by comparison with 2008: +11,5 percent for young adults, +18,5 percent for African Americans, +12 percent for Caucasian women 35-plus, +10,3 percent for Caucasian men 35-plus and +11,8 percent for Hispanics. Moreover, the nearest competitor has a surprising lower market share for all categories: about 11 times less in the case of Caucasian women 35-plus, 10 times less for Caucasian men 35-plus, 7 times less for Hispanics, 8 times less for African Americans and 3 times less for young adults. Harley-Davidson is the most popular motorcycle brand in the Unites States. Exhibit 2: Harley-Davidson is the number-one seller of new on-road motorcycles in the U.S.

Harley-Davidson Market Share 60,0% 50,0% 40,0% 30,0% 20,0% 10,0% 0,0% HARLEY-DAVIDSON Young adults, 18-34

African Americans, 35+

NEAREST COMPETITOR Hispanics

Caucasian men, 35+

Caucasian women, 35+

Dealerships Exhibit 3 represents the number of Harley-Davidson dealerships around the world, from 2006 until 2016. The most dealers are in USA, then follows Europe region, Asia Pacific region and lastly Latin America. Only from 2006 to 2007 there is a significant number of new openings: 160, 12 percent more than the previous year. However, the numbers of dealerships remain almost constant the following years until now, because of openings or closings worldwide. Therefore, its dealer network has not grown significantly in the last nine years. Exhibit 3: Harley-Davidson dealer network is constant over time.

DEALERS USA CANADA EUROPE ASIA PACIFIC LATIN AMERICA TOTAL

2016 701 67 386 249

2015 696 68 378 232

2014 694 69 369 273

2013 696 69 371 271

2012 695 73 371 281

2011 706 74 370 274

2010 729 74 364 272

2009 758 74 369 254

2008 787 74 381 200

2007 788 76 370 194

2006 679 75 354 178

58

61

55

51

47

44

40

40

45

49

31

1461

1435

1460

1458

1467

1468

1479

1495

1487

1477

1317 4

Stock analysis Price and volatility Harley-Davidson is listed in the New York Stock Exchange as “HOG”. Exhibit 4 reveals Harley stock last price from 31 December 2013 to 4 December 2017. The price reached its maximum on 30 April 2014, $67,88, and its minimum on 27 January 2016, $35,64, with a mean of $53,62 and a moderate range of $32,24. Exhibit 4: Harley-Davidson last price, 31/12/2013 – 04/12/2017.

Harley-Davidson Stock Quote $80,0 $70,0 $60,0 $50,0 $40,0 $30,0 $20,0 $10,0 $31/12/2013 30/06/2014 31/12/2014 30/06/2015 31/12/2015 30/06/2016 31/12/2016 30/06/2017

Price varied over the time with +19,8% at its best on 1 July 2016 and -13,9% at its worst on 20 October 2015. The swing is summarily negative: -0,004% (Exhibit 5). Exhibit 5: Harley-Davidson stock quote percentage change.

25,0% 20,0%

Harley-Davidson Stock Quote % Change

15,0% 10,0% 5,0% 0,0% -5,0% -10,0% -15,0% -20,0% 31/12/2013

31/12/2014

31/12/2015

31/12/2016

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Take into consideration 90 days, price gained +0,35% and lost -0,41% at the most. The variation is on average negative and equal to -0,012%. 90 days stock volatility assumes values that belong to the interval [0,012; 0,031] (Exhibit 6). Exhibit 6: Harley-Davidson stock quote percentage change 90 days.

Harley-Davidson Stock Quote % Change 90 Days 0,4%

0,035

0,3%

0,030

0,2%

0,025

0,1% 0,0% 13/05/2014 -0,1%

13/12/2014

13/07/2015

13/02/2016

13/09/2016

13/04/2017

0,020 13/11/2017 0,015

-0,2%

0,010

-0,3% -0,4%

0,005

-0,5%

0,000 AVG. % CHANGE 90 DAYS

VOLATILITY 90 DAYS

The beta of Harley-Davidson is 1,52 and it is greater than 1 (Exhibit 7). This means that the stock price is more volatile than the market. In particular, it’s 52% more volatile than Standard & Poor's 500 Index. Therefore, the stock's excess return is expected to outperform the benchmark by 52% in up markets and underperform by 52% during down markets. So, Harley stock offers the possibility of a higher rate of return, but also posing more risk! Exhibit 7: Harley-Davidson stock is more volatile than the S&P500.

Harley-Davidson Beta 25,0% 20,0% 15,0% 10,0% 5,0% -6,5%

-4,5%

-2,5%

y = 1,5166x - 0,0016 R² = 0,2315

0,0% -0,5% -5,0%

1,5%

3,5%

-10,0% -15,0%

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Technical analysis In exhibit 8, last price, 20 days and 50 days simple moving averages are illustrated. According to crossover strategy, the last buy signal was generated on 27 September 2017 when the short-term average crosses above the long-term average, while the last sell signal was triggered by the short-term average crossing below the long-term average on 30 October 2017. In fact, the short-term average crosses above the long-term average indicates the beginning of an uptrend, conversely a downtrend. Exhibit 8: Harley-Davidson 20 days moving average is actually under 50 days moving average.

Harley-Davidson Moving Averages $80,0 $70,0 $60,0 $50,0 $40,0 $30,0 $20,0 $10,0 $31/12/2013

30/06/2014

31/12/2014

30/06/2015 LAST PRICE

31/12/2015

30/06/2016

20 MA

50 MA

31/12/2016

30/06/2017

The difference between the 20 days simple moving average and the 50 days simple moving average is reducing from 27 November 2017 and it is -0,19 on 4 December 2017. It is meaningful since it allows to find turnover points more easily: 20 crossovers since 31 December 2013 (Exhibit 9). In addition, this difference is reducing from 27 November 2017 Exhibit 9: Harley-Davidson moving averages difference is reducing.

Harley-Davidson Moving Averages Difference $5,0 $4,0 $3,0 $2,0 $1,0 $31/12/2013 $-1,0 $-2,0 $-3,0 $-4,0 $-5,0

30/06/2014

31/12/2014

30/06/2015

31/12/2015

30/06/2016

31/12/2016

30/06/2017

7

In the chart below (Exhibit 10), the RSI, on a scale of 0-100, indicates that the overbought position is at 70 and the oversold position is at 30. There was a distinct buy signal at the half of October 2017 as the indicator moves strongly above the 30 level. Here the price action continued from about the $46 level to above the $49 level. Then, at the end of November 2017, the RSI moves with conviction into the danger zone, hitting 70+ on the scale, indicating a strong sell signal (Exhibit 11). Exhibit 10: Harley-Davidson stock is overbought.

Harley-Davidson Relative Strenght Index 100 90 80 70 60 50 40 30 20 10 0 31/12/2013

31/05/2014

31/10/2014

31/03/2015

31/08/2015

31/01/2016

RSI 14

30

30/06/2016

30/11/2016

30/04/2017

30/09/2017

70

Exhibit 11: Harley-Davidson stock sell and buy signals.

Harley-Davidson RSI Buy Sell $80,0 $70,0 $60,0 $50,0 $40,0 $30,0 $20,0 $10,0 $31/12/2013

30/06/2014

31/12/2014

30/06/2015 LAST PRICE

31/12/2015 BUY

30/06/2016

31/12/2016

30/06/2017

SELL

Earnings per share Exhibit 12 contains the portions of Harley-Davidson's profit allocated to each outstanding share (EPS). During the years the earnings per share switched, especially during Automotive Industry Crisis of 2008-2010, when it reached its lowest level: 0,82, less than 78% compared to 2007. Then, it started to recover, up of an incredible 102% from 2010 to 2011, after the financial crisis. Nowadays it is in line with 2007’s value, but it is expected to go down for 2017 and then to go back to 3,70 level and to keep this value for 2018 and 2019, according to estimates. 8

Exhibit 12: Harley-Davidson annual earnings per share.

EPS

2007 2008 3,75 2,79

2009 0,82

2010 1,27

2011 2,57

2012 2,73

2013 3,29

2014 3,89

2015 3,63

2016 3,83

2017E 3,42

2018E 3,72

2019E 3,72

Harley’s EPS follows a positive trend, stronger considering the forecasts (Exhibit 13). Exhibit 13: Harley-Davidson EPS have a positive trend.

Harley-Davidson EPS 1,8 1,6 1,4 1,2 y = 0,008x + 0,5482 R² = 0,0669

1 0,8 0,6 0,4

y = 0,0098x + 0,465 R² = 0,1121

0,2 0 Q107

Q108

Q109

Q110

FORECAST

Q111

Q112

Q113

EPS

Q114

Q115

LINEAR (FORECAST)

Q116

Q117

Q118E Q119E

LINEAR (EPS)

Dividend per share DPS is important because the number one goal of a company is to return value to its shareholders. Increasing DPS is a great way for a company to signal strong performance to its shareholders and this is what Harley-Davidson is doing. The sums of declared dividends issued by Harley-Davidson for every ordinary share outstanding are represented in Exhibit 14, and it’s obvious that DPS is going up over the quarters. It will peak in the second quarter of 2018 at 0,88, about 9 times more respect to 2009. It’s not wrong to suppose on the basis of DPS increase that it will be an increase in the company’s share price, since the market usually responds favorably to higher dividend per share. Exhibit 14: Harley-Davidson dividend per share growth.

Harley-Davidson DPS 1,00 0,80 0,60 0,40 0,20

y = 0,0074x + 0,0919 R² = 0,3995

0,00

9

Intrinsic value A stock also is capable of holding intrinsic value, outside of what its perceived market price is. One model popularly used for finding a company's intrinsic value is the dividend discount model.

Dividend Discount Model The present value of the future dividends obtained from the DDM, $49,9, is lower than the current market value of the stock $51,81, so the stock is overvalued (+4,65%). Harley is a bad investment according to Dividend Discount Model.

Residual Income Model The Residual Income Model is very similar to DDM, substituting future dividend payments for future residual earnings. The fair value of Harley stock using the residual income approach is $45,81, more than four times the book value ($10,98). So, the beginning book value of equity contributes a small portion of share value, $10,98 of the $45,81. The stream of the discounted stream of residual income contributes a large amount ($34,83). Because the firm has earnings in excess of the capital charge (positive residual income), the stock value is greater than the book value of equity ($10,98). Exhibit 15: Harley-Davidson ROE and BV tendencies in the Residual Income Model.

40,0

35,0

Residual Income Model

35,0

30,0

30,0

25,0

25,0

20,0

20,0 15,0

15,0

10,0

10,0

5,0

5,0 ROE

Book Value

0,0

0,0 2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

Discounted Cash Flow In contrast to the Residual Income Model, DCF approach uses the weighted average cost of capital for the discount rate instead of the cost of equity. Let’s take a look to Harley’s Earnings Before Interest and Taxes (EBIT) and Free Cash Flow to the Firm (FCFF) first. The operating profit is $96,71M in the third quarter of 2017, -45,78% in comparison to the same quarter of the previous year. A negative trend started in 2015, maintained also in 2016 and in the three quarters of 2017. A wonderful fourth quarter should be in order to invert the trend and to confirm the positive estimates based on the historical values for the current year, but it is a mission impossible for Harley-Davidson. 10

After a drop in 2015-2016, EBIT is expected to increase from year to year: +0,63 in 2017, +1,66% in 2018 and +5,99% in 2019 (Exhibit 16). Exhibit 16: Harley-Davidson EBIT is reducing since 2015.

Harley-Davidson EBIT 600 500 400 300 200 100 0 -100 -200 -300 EBIT

EBIT F'AST

The FCFF will close 2017 up to 21,4% more respect to 2016, especially for a great performance in the first quarter of 2017: +1968,89% from Q1 2016, $141M versus $6,82M. FCFF will rise also in 2018 and 2019. Exhibit 17: Harley-Davidson FCFF is going up.

Harley-Davidson FCFF 800 600 400 200 0 -200 -400 -600 -800 FCFF

FCFF F'AST

According to DCF approach, the terminal value of Harley stock per share is equal to $277,31, that is greater than the last stock price, $51,81 (-435,25%). So, the stock is moderately undervalued. However, this result has to be treated with extremely caution since the 2017 EBIT will be probably negative and not positive as for the optimistic Excel.

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Sales walking Harley’s revenue (sales) scaled to 2015 first quarter is plotted against EBITDA margin with historical and estimated values. Sales and EBITDA are foreseen to decrease in 2018. Consequently, EBITDA to sales ratio will remain rather stable. In other words, the company will lose revenues and it won’t be able to improve its earnings via efficient processes that keep certain expenses low (Exhibit 18). Exhibit 18: Harley-Davidson’s sales will reduce in 2018.

Harley-Davidson Sales Walking 30,0% 28,0% 26,0% 24,0% 22,0% 20,0% 18,0% 16,0% 14,0% 12,0% 10,0% 60

70

80

90 FORECAST

100

110

SALES

Multiples Harley-Davidson operates in “Consumer discretionary” sector, “Automobiles and components” industry. The peer group is made up of assets working in the same business: General Motors Co, Ford Motor Co, Aptiv Plc, Borgwarner Inc, Goodyear Tire, Thor Industries, Gentex Corp, Dana Inc, Lci Industries, Dorman Products, CooperStandard, Amer Axle & Mfg, Cooper Tire & Ru, Winnebago Inds, Fox Factory Hold, Gentherm Inc, Standard Motor. The Comparable Company Analysis is done through price and enterprise value based multiples.

P/E Ratio Harley has an actual Price to Earnings Ratio of 15,1, that is greater than 2016’s value, 14,9, which means the situation is got worse since an investor is willing to pay more for $1 of current earnings. However, the status will improve in 2018 with a lower P/E Ratio, 13,9. This improvement is reflected also by the difference of the Forward P/E and the Traling P/E: -2,2. Exhibit 19: Harley-Davidson will have a lower P/E Ratio in 2018.

Harley-Davidson P/E Ratio 20,0

14,9

15,1

13,9

13,9

16,1

0,0 2016

2017

2018

F12M

T12M

12

Amer Axle & Mfg, General Motors co, Ford Motor Co, Cooper-Standard, Cooper Tire & Ru, Goodyear Tire, Dana Inc, Borgwarner Inc perform better in terms of P/E Ratio, while the rest worser than Harley-Davidson. It is bigger than the mean of the ranking (Exhibit 20). According to this ratio, a good investor should go long on Amer Axle & Mfg, General Motors co, Ford Motor Co, CooperStandard and should go short on Dorman Products, Winnebago Inds, Lci Industries, Fox Factory Hold. Exhibit 20: Harley-Davidson has the average P/E Ratio.

P/E Ratio

30,0 20,0 10,0

4,84

6,83

6,98

20,15 21,31 22,52 16,24 16,30 16,49 16,95 17,76 15,10 14,19 11,21 11,41 11,49 13,11

25,93

0,0

P/B Ratio 3,57 is the Price to Book Ratio of Harley-Davidson. That is to say, Harley stock costs 3,57 times the asset could be sold for. Equally, Harley’s shareholders are paying more than what would be left if the company went bankrupt immediately. The difference between price and book value is due to growth potential of Harley that is seen by investors. Exhibit 21: Harley-Davidson costs 3,57 times the asset could be sold for.

P/B Ratio

8,0 6,0 4,0 2,0 0,0

7,21

1,26

1,46

1,50

1,61

1,65

2,08

2,24

2,51

2,91

2,92

3,53

3,57

3,62

4,55

4,94

7,57

5,06

13

Even all the peer group has P/B Ratio greater than 1. This means that all companies are overvalued, especially Ford Motor Co (7,57) and Winnebago Inds (7,21). On the other side, there are Standard Motor (1,26) and General Motors Co (1,46) (Exhibit 21).

Dividend Yield Harley is the number three as dividend yield, 2,84%, behind General Motors Co, 3,54%, and Ford Motor Co, 4,92%. Dorman Products, Cooper-Standard, Amer Axle & Mfg, Fox Factory Hold and Gentherm Inc don’t pay dividends (Exhibit 22). Exhibit 22: Harley-Davidson is on the podium of dividend yield.

Dividend Yield FORD MOTOR CO GENERAL MOTORS C HARLEY-DAVIDSON INC GENTEX CORP STANDARD MOTOR LCI INDUSTRIES GOODYEAR TIRE COOPER TIRE & RU APTIV PLC BORGWARNER INC THOR INDUSTRIES WINNEBAGO INDS DANA INC GENTHERM INC FOX FACTORY HOLD AMER AXLE & MFG COOPER-STANDARD DORMAN PRODUCTS

2,84%

1,88% 1,66% 1,60% 1,30% 1,15% 1,12% 1,03% 0,89% 0,77% 0,74% 0% 0% 0% 0% 0%

0,0%

1,0%

2,0%

4,92%

3,54%

3,0%

4,0%

5,0%

EV/Sales According to EV to Sales Ratio, Harley gain one position respect to Dividend Yield, but now it is not good to be higher because it means to be costlier. In particular, the company is the second one (3,04) in the ranking, behind Fox Factory Hold (3,21) and ahead of Gentex Corp (2,89). Ford Motor Co, General Motors Co and Cooper Tire & Ru have the best performance with respectively 0,28, 0,41 and 0,70. So, they are great investment opportunities because they are perceived as undervalued and investors would get good benefit out of them (Exhibit 23).

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Exhibit 23: Harley-Davidson has the second highest EV/Sales ratio and it is not good.

EV/Sales

4,0 3,0 2,0 1,0 0,0

0,28

0,41

0,70

0,71

0,84

0,90

0,90

0,96

0,97

1,12

1,30

1,40

1,54

1,70

2,37

2,89

3,04

3,21

EV/EBITDA A similar ratio of EV/Sales is EV to EBITDA ratio. With EBITDA at the denominator this time, the situation changes a little bit. All firms still remain overvalued, particularly Fox Factory Hold, Harley-Davidson and Lci Indutries. Ford Motor Co, General Motors Co and Cooper Tire & Ru are the best performers (Exhibit 24). Exhibit 24: Harley-Davidson still remain the second highest overvalued.

EV/EBITDA

20,0 15,0 10,0 5,0 0,0

16,94

3,25

3,46

4,87

5,07

5,64

6,41

7,16

8,26

8,28

8,77

11,45 11,82 12,08 13,05 9,76 10,79 10,84

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Portfolio Theory In addition to Harley-Davidson, my portfolio is composed by: General Motors Co, Ford Motor Co, Aptiv Plc, Borgwarner Inc, Goodyear Tire, Thor Industries, Gentex Corp, Dana Inc, Lci Industries, Dorman Products, Cooper-Standard, Amer Axle & Mfg, Cooper Tire & Ru, Winnebago Inds, Fox Factory Hold, Gentherm Inc, Standard Motor. The Efficient Frontier is shown in Exhibit 25, where the standard deviation (σp), or total risk, is on the x-axis and expected portfolio return, E(Rp), is on the y-axis. The hyperbola contains all the most efficient portfolio, investing in any portfolio not on this curve is not desirable because they provide the same level of return with a higher level of risk or a lower level of return with the same amount of risk. The violet square is the optimal risky portfolio, or market portfolio, with an expected return of 1,70% and a standard deviation of 6%. The yellow triangle is the portfolio with the minimum variance, 2%, and 0,25% of expected return. The line tangent to the Markowitz efficient frontier in the Market Portfolio is the Capital Market Line. Points above CML are not achievable. Exhibit 25: Efficient Frontier and Capital Market Line. 2,5%

Efficient Frontier & CML

2,0%

EXPECTED RETURN

1,5%

-0,010

1,0%

EFFICIENT FRONTIER CAPITAL MARKET LINE (CML)

0,5% 0,0% 0,000

MARKET PORTFOLIO GLOBAL MINIMUM-VARIANCE PORTFOLIO

0,010

0,020

0,030

0,040

0,050

0,060

0,070

0,080

-0,5% STANDARD DEVIATION -1,0%

The next graphs show the weights of the assets for the Optimal Risky Portfolio and the Global Minimum-Variance Portfolio. The weights indicate the fraction of the portfolio’s total value held in each asset. So, Harley-Davidson, Ford Motor Co, General Motors Co, Borgwarner Inc, Dorman Products, Amer Axle & Mfg, Cooper Tire & Ru, Gentherm Inc and Standard Motor are being shorted in the Efficient Portfolio, opening up more funds for the purchase of the other stocks: Aptiv Plc, Goodyear Tire, Thor Industries, Gentex Corp, Dana Inc, Lci Industries, Cooper-Standard and Fox Factory Hold (Exhibit 26).

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Exhibit 26: Assets weights for Market Portfolio.

Weights for Efficient Portfolio

150,00% 50,00%

7,05%

0,00% -50,00% -100,00%

100,59%

89,29%

100,00%

60,44% 29,68%28,88%

61,13%

-5,50%

37,82% 10,21% -12,00%

-32,63%

-5,43%-10,90%

-51,77%

-86,88%

-31,67%

-88,32%

The situation is different in the Minimum-Variance Portfolio: still General Motors Co, Borgwarner Inc, Amer Axle & Mfg and Gentherm Inc are being shorted, but now Harley is being longed (Exhibit 27).

Exhibit 27: Assets weights for Minimum-Variance Portfolio.

Weights for Minimum-Variance Portfolio

30,00% 20,00%

28,25% 17,56%

14,19%

6,49%

10,00% 0,00% -10,00%

16,27%

13,00%

12,39%

6,04% 4,69%

10,12%

10,05%

-0,45%

-1,11% -8,93% -7,01%

-6,77%

-5,85%

-8,95%

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Conclusion SCOREBOARD MOVING AVERAGE RSI EPS DPS DDM RIM EBIT FCFF DCF SALES WALKING P/E P/B DIVIDEND YIELD EV/SALES EV/EBITDA PORTFOLIO THEORY TOTAL

FAIL FAIL FAIL PASS FAIL PASS FAIL PASS FAIL FAIL FAIL FAIL PASS FAIL FAIL FAIL FAIL=12 PASS=4

Harley-Davidson is an iconic brand all over the world. The stock has pros and cons, but the cons are more. PROS: The Dividend per share is expected to increase in the next quarters. The Residual Income Model provides a positive value that is bigger than book value of equity. The 2017 Free Cash Flow to Firm will be greater than the 2016 value and the positive trend is confirmed also for 2018 and 2019 years. The stock has the third highest dividend yield in comparison to other “automotive” peers.

CONS: The 20 days moving average is actually below the 50 days moving average, which means a declining price. The Relative Strength Index is above the 70-level indicating a strong sell signal. SELL The estimates for Earnings per share include a worsening in the 2017 compared to 2016. The Dividend Discount Model reveals that the stock is overvalued since its value is smaller than the last price. The Discounted Cash Flow’s result is a false positive: the EBIT foreseen by the excessive “optimism” of Excel are probably wrong considering the terrible reduction in all the three quarters of 2017 respect to the same quarters of the previous year. It is a “mission impossible” for Harley-Davidson to recover in the fourth quarter of 2017. The P/E and P/B Ratios are above the respective mean of the peer group ranking. The sales (revenues) will shrink in 2018 and the EBITDA Margin won’t improve. The EV to Sales and EV to EBITDA Ratios indicate that Harley is highly overvalued compared to its peers. The Portfolio Theory made the stock shorted in the Efficient Portfolio. So, sell Harley-Davidson!

- Data retrieved from Harley-Davidson official website and Bloomberg terminal -

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