6 Reasons Harley-Davidson Could Be A Buy, Despite Industry Headwinds

Most of Harley-Davidson Inc (NYSE: HOG)'s Q1 earnings beat can be explained by the company bumping back marketing costs to Q2. However, at 10.6x earnings, Deutsche Bank analyst Rod Lache believes there is still a bull case for the stock.

Harley reported Q1 earnings of $1.36, well ahead of consensus expectations of $1.29. Management indicated that the company pushed certain marketing plans from Q1 to Q2, resulting in a $0.10 earnings boost last quarter.

In addition, the company’s motorcycle EBIT declined from $345.5 million to $332.5 million year-over-year and margins declined from 22.9 percent to 21.1 percent. The company admitted that pricing pressures from competition were partly to blame.

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Harley's U.S. market share also declined from 51.3 percent to 50.9 percent year-over-year.

Despite the number of headwinds, Lache believes bulls have a strong case at the current share price.

The Bull Case On The Hog

He sees six arguments that Harley bulls can make:

• 1. Stabilization in core segments
• 2. International revenue growth
• 3. A weakening U.S. dollar
• 4. A number of potential margin drivers
• 5. A 10.6x 2017 earnings multiple
• 6. No need for discounting

Deutsche Bank maintains a Hold rating on Harley-Davidson and a $47 price target. The price target is based on DCF analysis and a 2017 PE of 11x.

Disclosure: The author holds no position in the stocks mentioned.