In the November 16, 2007 "Value Line" presentation of Harley Davidson (HOG), I find the projected target price in 2010 to be between $80 an $130 per share, unchanged from the August 17, 2007 presentation.
The recent stock price is listed at $48.70 per share, p/e ratio is 12.6, Net Profit Margin is 16.0%, down from the 2006 number of 18.0%. While I am a value investor, I've noted over the years that the slightest move in Net Profit Margin (NPM) has been the best indicator of stock valuation over the short term. With an expected NPM of 15.0% in 2008, I think paying more than 10 times next year's expected earnings or $37.50 would be pricey.
I noted by combining earnings per share and dividends that the total pretax monetary gain appears as $4.75 for 2006, $4.81 for 2007 and $5.15 for 2008, a continued upward trend.
Given that HOG will not fully recover before the new motorcycling season in the Spring of 2008 and could take much longer, I feel that 10 times 2008 expected earnings and dividends ($5.15) or $51.50 is the most a value investor could justify for this stock at this time.
Were all conditions perfect with the economy and HOG, I might pay relative value to the 30 year treasury bond for HOG, given its strong name brand, excellent 10 year economic track record and billion dollar earnings per share, if nothing else presented a better opportunity. The long bond is at about 4.5% currently, so with next year's expected earnings at $3.75, we are looking at $83.33 as relative value to the long bond ($3.75/ 4.5% = $83.33). No way I'd pay it today, however.
Gene
