Harley-Davidson (NYSE: HOG) shares have struggled since the last earnings report, but this is a questionable move. The company’s turnaround efforts, investment into EV and product development, and a surprisingly large increase in global orders are no reason to sell a stock, although there is a significant risk to the global economy. The takeaway for investors is that results and outlook were better than expected and have sparked a shift in both the analyst and the institutional sentiment. That shift is gaining momentum now that price action is back in the “buy zone,” It looks like a good 30% upside is possible for investors.
The 30% upside is on top of the dividend, which yields about 1.75% at current price levels. That’s not an overly attractive payout relative to the S&P 500; it is reliable at less than 15% of earnings and can be expected to grow in the coming years. Harley-Davidson grew its dividend before the pandemic and cut it to save capital during the crisis.
The payout has been increased since the cut but not to the pre-pandemic level, which is more than double the current payout. The company’s Q4 2022 revenue is up compared to 2019 and down compared to 2018, but adjusted earnings are above both periods, so it looks like increases will continue; the question is, when will the payout regain its former glory? Assuming business continues as expected, the answer may be sooner.
Sell-Side Activity Takes A Turn For The Better
The insider activity in HOG shares has been very light over the past year, and holdings are less than 1.0%, which is ultimately negligible regarding the price action. On the other hand, the institutions and analysts were selling or at least easing their stance, but that has changed. The stock received 3 analyst updates since the Q4 release, the 1st activity in months. The updates include one boosted target and two upgrades to Neutral and Overweight, both tied to consensus-level price targets. The increased target is also consistent with the consensus expectation and has the analysts' average firmed after a year of decline. The average sentiment is now a Moderate Buy and up from Hold.
"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. Other changes include providing stock options to factory workers and focusing the business on its highly loyal core motorcycle market,” said Morgan Stanley (NYSE: MS) analyst Adam Jonas when he upped the stock to Overweight.
Regarding the institutions, the institutions have been sellers on balance for 4 of the last 6 quarters, but the tide has made a significant shift in Q1 2022. Institutional activity picked up, and buying is outpacing selling by more than 2:1 and may help put a bottom in the stock. Truist, Lazard Asset Management LLC, and Morgan Stanley are all recent purchasers that made large increases or hold significant positions in this company.
The Technical Outlook: Harley-Davidson Skids Into A Buy Zone?
Shares of Harley-Davidson hit the skids following the Q4 release, but the decline may be over. The analyst and institutional sentiment is a trigger to buy that the market may follow through on. If so, we can expect to see this stock begin to bottom, and the current price level near the mid-point of a trading range is a good place for it to happen. The stock may move sideways at this level and build a base in this scenario. If not, this stock may fall to the lower end of the range, where it would be an even more significant value than the 8X earnings it is trading for now.