Intrinsic value of Harley-Davidson, Inc. - HOG

Previous Close

$33.84

  Intrinsic Value

$22.72

stock screener

  Rating & Target

sell

-33%

Previous close

$33.84

 
Intrinsic value

$22.72

 
Up/down potential

-33%

 
Rating

sell

We calculate the intrinsic value of HOG stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 5.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  5,831
  5,965
  6,119
  6,291
  6,482
  6,691
  6,919
  7,165
  7,431
  7,716
  8,021
  8,347
  8,694
  9,062
  9,453
  9,867
  10,306
  10,769
  11,259
  11,777
  12,323
  12,898
  13,505
  14,144
  14,818
  15,527
  16,273
  17,058
  17,884
  18,753
Variable operating expenses, $m
  4,922
  5,035
  5,164
  5,309
  5,470
  5,646
  5,838
  6,046
  6,270
  6,511
  6,762
  7,037
  7,329
  7,640
  7,969
  8,318
  8,688
  9,079
  9,492
  9,928
  10,388
  10,874
  11,385
  11,924
  12,492
  13,090
  13,719
  14,381
  15,077
  15,810
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  4,922
  5,035
  5,164
  5,309
  5,470
  5,646
  5,838
  6,046
  6,270
  6,511
  6,762
  7,037
  7,329
  7,640
  7,969
  8,318
  8,688
  9,079
  9,492
  9,928
  10,388
  10,874
  11,385
  11,924
  12,492
  13,090
  13,719
  14,381
  15,077
  15,810
Operating income, $m
  910
  931
  955
  982
  1,012
  1,045
  1,080
  1,119
  1,161
  1,206
  1,259
  1,310
  1,365
  1,422
  1,484
  1,549
  1,618
  1,690
  1,767
  1,848
  1,934
  2,025
  2,120
  2,220
  2,326
  2,437
  2,554
  2,678
  2,807
  2,944
EBITDA, $m
  1,112
  1,138
  1,167
  1,200
  1,236
  1,276
  1,320
  1,367
  1,418
  1,472
  1,530
  1,592
  1,658
  1,729
  1,803
  1,882
  1,966
  2,054
  2,148
  2,247
  2,351
  2,461
  2,576
  2,698
  2,827
  2,962
  3,104
  3,254
  3,412
  3,577
Interest expense (income), $m
  186
  410
  420
  430
  443
  456
  472
  489
  507
  527
  548
  571
  596
  622
  650
  679
  711
  744
  779
  817
  856
  898
  942
  988
  1,037
  1,088
  1,142
  1,199
  1,259
  1,322
  1,389
Earnings before tax, $m
  499
  511
  525
  539
  555
  573
  592
  612
  634
  658
  688
  715
  743
  773
  804
  838
  874
  911
  951
  992
  1,037
  1,083
  1,132
  1,184
  1,238
  1,295
  1,355
  1,418
  1,485
  1,555
Tax expense, $m
  135
  138
  142
  146
  150
  155
  160
  165
  171
  178
  186
  193
  201
  209
  217
  226
  236
  246
  257
  268
  280
  292
  306
  320
  334
  350
  366
  383
  401
  420
Net income, $m
  365
  373
  383
  394
  405
  418
  432
  447
  463
  480
  502
  522
  542
  564
  587
  612
  638
  665
  694
  725
  757
  791
  826
  864
  904
  945
  989
  1,035
  1,084
  1,135

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  10,488
  10,729
  11,005
  11,315
  11,658
  12,034
  12,444
  12,887
  13,365
  13,878
  14,427
  15,013
  15,636
  16,299
  17,002
  17,747
  18,535
  19,369
  20,251
  21,181
  22,163
  23,198
  24,290
  25,440
  26,651
  27,926
  29,268
  30,680
  32,166
  33,729
Adjusted assets (=assets-cash), $m
  10,488
  10,729
  11,005
  11,315
  11,658
  12,034
  12,444
  12,887
  13,365
  13,878
  14,427
  15,013
  15,636
  16,299
  17,002
  17,747
  18,535
  19,369
  20,251
  21,181
  22,163
  23,198
  24,290
  25,440
  26,651
  27,926
  29,268
  30,680
  32,166
  33,729
Revenue / Adjusted assets
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
Average production assets, $m
  985
  1,008
  1,034
  1,063
  1,095
  1,131
  1,169
  1,211
  1,256
  1,304
  1,356
  1,411
  1,469
  1,531
  1,598
  1,668
  1,742
  1,820
  1,903
  1,990
  2,083
  2,180
  2,282
  2,390
  2,504
  2,624
  2,750
  2,883
  3,022
  3,169
Working capital, $m
  2,385
  2,440
  2,503
  2,573
  2,651
  2,737
  2,830
  2,931
  3,039
  3,156
  3,281
  3,414
  3,556
  3,706
  3,866
  4,036
  4,215
  4,405
  4,605
  4,817
  5,040
  5,275
  5,524
  5,785
  6,060
  6,350
  6,656
  6,977
  7,315
  7,670
Total debt, $m
  7,769
  7,968
  8,197
  8,453
  8,737
  9,049
  9,388
  9,755
  10,151
  10,576
  11,030
  11,515
  12,031
  12,580
  13,162
  13,779
  14,432
  15,122
  15,852
  16,623
  17,436
  18,293
  19,196
  20,149
  21,151
  22,207
  23,319
  24,488
  25,718
  27,012
Total liabilities, $m
  8,684
  8,884
  9,112
  9,368
  9,652
  9,964
  10,303
  10,671
  11,067
  11,491
  11,946
  12,430
  12,947
  13,495
  14,077
  14,694
  15,347
  16,038
  16,768
  17,538
  18,351
  19,208
  20,112
  21,064
  22,067
  23,123
  24,234
  25,403
  26,634
  27,928
Total equity, $m
  1,804
  1,845
  1,893
  1,946
  2,005
  2,070
  2,140
  2,217
  2,299
  2,387
  2,481
  2,582
  2,689
  2,803
  2,924
  3,052
  3,188
  3,332
  3,483
  3,643
  3,812
  3,990
  4,178
  4,376
  4,584
  4,803
  5,034
  5,277
  5,533
  5,801
Total liabilities and equity, $m
  10,488
  10,729
  11,005
  11,314
  11,657
  12,034
  12,443
  12,888
  13,366
  13,878
  14,427
  15,012
  15,636
  16,298
  17,001
  17,746
  18,535
  19,370
  20,251
  21,181
  22,163
  23,198
  24,290
  25,440
  26,651
  27,926
  29,268
  30,680
  32,167
  33,729
Debt-to-equity ratio
  4.310
  4.320
  4.330
  4.340
  4.360
  4.370
  4.390
  4.400
  4.420
  4.430
  4.450
  4.460
  4.470
  4.490
  4.500
  4.510
  4.530
  4.540
  4.550
  4.560
  4.570
  4.580
  4.590
  4.600
  4.610
  4.620
  4.630
  4.640
  4.650
  4.660
Adjusted equity ratio
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172
  0.172

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  365
  373
  383
  394
  405
  418
  432
  447
  463
  480
  502
  522
  542
  564
  587
  612
  638
  665
  694
  725
  757
  791
  826
  864
  904
  945
  989
  1,035
  1,084
  1,135
Depreciation, amort., depletion, $m
  203
  207
  212
  218
  225
  232
  239
  248
  257
  266
  271
  282
  294
  306
  320
  334
  348
  364
  381
  398
  417
  436
  456
  478
  501
  525
  550
  577
  604
  634
Funds from operations, $m
  567
  580
  595
  612
  630
  650
  671
  695
  720
  746
  773
  804
  836
  870
  907
  945
  986
  1,029
  1,075
  1,123
  1,173
  1,227
  1,283
  1,342
  1,404
  1,470
  1,539
  1,612
  1,688
  1,769
Change in working capital, $m
  47
  55
  63
  70
  78
  86
  93
  101
  109
  117
  125
  133
  142
  151
  160
  169
  179
  190
  200
  212
  223
  235
  248
  261
  275
  290
  305
  321
  338
  355
Cash from operations, $m
  520
  526
  533
  541
  552
  564
  578
  594
  611
  630
  649
  671
  694
  720
  747
  776
  807
  839
  874
  911
  950
  991
  1,035
  1,081
  1,129
  1,180
  1,234
  1,291
  1,351
  1,413
Maintenance CAPEX, $m
  -193
  -197
  -202
  -207
  -213
  -219
  -226
  -234
  -242
  -251
  -261
  -271
  -282
  -294
  -306
  -320
  -334
  -348
  -364
  -381
  -398
  -417
  -436
  -456
  -478
  -501
  -525
  -550
  -577
  -604
New CAPEX, $m
  -22
  -23
  -26
  -29
  -32
  -35
  -39
  -42
  -45
  -48
  -52
  -55
  -59
  -62
  -66
  -70
  -74
  -78
  -83
  -87
  -92
  -97
  -103
  -108
  -114
  -120
  -126
  -133
  -140
  -147
Cash from investing activities, $m
  -215
  -220
  -228
  -236
  -245
  -254
  -265
  -276
  -287
  -299
  -313
  -326
  -341
  -356
  -372
  -390
  -408
  -426
  -447
  -468
  -490
  -514
  -539
  -564
  -592
  -621
  -651
  -683
  -717
  -751
Free cash flow, $m
  306
  306
  305
  306
  307
  310
  314
  318
  324
  330
  336
  344
  354
  364
  375
  386
  399
  413
  427
  443
  460
  477
  496
  516
  537
  559
  583
  608
  634
  662
Issuance/(repayment) of debt, $m
  169
  200
  228
  256
  284
  312
  339
  367
  396
  425
  454
  485
  516
  549
  582
  617
  653
  691
  730
  770
  813
  857
  904
  952
  1,003
  1,056
  1,111
  1,169
  1,230
  1,294
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  169
  200
  228
  256
  284
  312
  339
  367
  396
  425
  454
  485
  516
  549
  582
  617
  653
  691
  730
  770
  813
  857
  904
  952
  1,003
  1,056
  1,111
  1,169
  1,230
  1,294
Total cash flow (excl. dividends), $m
  475
  506
  533
  562
  591
  621
  653
  686
  720
  755
  791
  829
  870
  912
  957
  1,003
  1,052
  1,103
  1,157
  1,213
  1,273
  1,335
  1,400
  1,468
  1,540
  1,615
  1,694
  1,777
  1,865
  1,956
Retained Cash Flow (-), $m
  -30
  -41
  -47
  -53
  -59
  -65
  -70
  -76
  -82
  -88
  -94
  -101
  -107
  -114
  -121
  -128
  -136
  -143
  -152
  -160
  -169
  -178
  -188
  -198
  -208
  -219
  -231
  -243
  -256
  -269
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  445
  464
  486
  509
  532
  557
  582
  609
  637
  667
  696
  729
  763
  798
  836
  875
  916
  960
  1,005
  1,053
  1,104
  1,157
  1,212
  1,270
  1,332
  1,396
  1,464
  1,535
  1,609
  1,687
Discount rate, %
  9.40
  9.87
  10.36
  10.88
  11.43
  12.00
  12.60
  13.23
  13.89
  14.58
  15.31
  16.08
  16.88
  17.73
  18.61
  19.54
  20.52
  21.54
  22.62
  23.75
  24.94
  26.19
  27.50
  28.87
  30.32
  31.83
  33.42
  35.09
  36.85
  38.69
PV of cash for distribution, $m
  407
  384
  361
  336
  310
  282
  254
  226
  198
  171
  145
  122
  100
  81
  65
  50
  38
  29
  21
  15
  10
  7
  5
  3
  2
  1
  1
  0
  0
  0
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Harley-Davidson, Inc. is the parent company for the groups of companies doing business as Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). The Company operates in two segments: the Motorcycles & Related Products (Motorcycles) and the Financial Services. The Motorcycles segment consists of HDMC, which designs, manufactures and sells at wholesale on-road Harley-Davidson motorcycles, as well as motorcycle parts, accessories, general merchandise and related services. The Company manufactures and sells at wholesale cruiser and touring motorcycles. The Financial Services segment consists of HDFS, which provides wholesale and retail financing and insurance-related programs to the Harley-Davidson dealers and their retail customers. HDFS is engaged in the business of financing and servicing wholesale inventory receivables and retail consumer loans for the purchase of Harley-Davidson motorcycles.

FINANCIAL RATIOS  of  Harley-Davidson, Inc. (HOG)

Valuation Ratios
P/E Ratio 8.6
Price to Sales 1
Price to Book 3.1
Price to Tangible Book
Price to Cash Flow 5.1
Price to Free Cash Flow 6.5
Growth Rates
Sales Growth Rate 0%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -1.5%
Cap. Spend. - 3 Yr. Gr. Rate 4.2%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 243.1%
Total Debt to Equity 354.6%
Interest Coverage 7
Management Effectiveness
Return On Assets 8.2%
Ret/ On Assets - 3 Yr. Avg. 9%
Return On Total Capital 7.9%
Ret/ On T. Cap. - 3 Yr. Avg. 8.9%
Return On Equity 36.8%
Return On Equity - 3 Yr. Avg. 32.3%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 40.1%
Gross Margin - 3 Yr. Avg. 40.6%
EBITDA Margin 23.7%
EBITDA Margin - 3 Yr. Avg. 24.9%
Operating Margin 17.5%
Oper. Margin - 3 Yr. Avg. 19.1%
Pre-Tax Margin 17.1%
Pre-Tax Margin - 3 Yr. Avg. 19%
Net Profit Margin 11.5%
Net Profit Margin - 3 Yr. Avg. 12.6%
Effective Tax Rate 32.4%
Eff/ Tax Rate - 3 Yr. Avg. 33.7%
Payout Ratio 36.4%

HOG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HOG stock intrinsic value calculation we used $5717 million for the last fiscal year's total revenue generated by Harley-Davidson, Inc.. The default revenue input number comes from 0001 income statement of Harley-Davidson, Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our HOG stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 9.4%, whose default value for HOG is calculated based on our internal credit rating of Harley-Davidson, Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Harley-Davidson, Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of HOG stock the variable cost ratio is equal to 84.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for HOG stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Harley-Davidson, Inc..

Corporate tax rate of 27% is the nominal tax rate for Harley-Davidson, Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the HOG stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for HOG are equal to 16.9%.

Life of production assets of 0 years is the average useful life of capital assets used in Harley-Davidson, Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for HOG is equal to 40.9%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1773.949 million for Harley-Davidson, Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 159.563 million for Harley-Davidson, Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Harley-Davidson, Inc. at the current share price and the inputted number of shares is $5.4 billion.

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