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Harley-Davidson For 25% Upside This Year

Harley-Davidson Inc. (HOG) has done very well since hitting a low of $7.99 per share back in 2009. Since then, the company has rebounded nicely, gaining over 525% (Who else wishes they would have gone all-in during March of 2009?). However, I believe the company still has more growth to go, and could be a great investment over the next several years.


HOG has an advantage in the form of the most fiercely loyal customers perhaps in the entire automotive industry. Most Harley riders have owned one (or several) of the company's bikes before. Therefore, a major point of the company's strategy is their focus on current owners. Speaking of which, the "average" Harley customer may not be quite what you expect. The company says that their average customer is a male over the age of 35 with an income above $85,000. The company maintains the majority of the market share in the heavyweight motorcycles arena, accounting for 55.7% of all new heavyweight registrations last year, and this has been on an uptrend over the past few years.


However, going forward, most of HOG's growth will likely come from abroad. Last year, $1.51 billion of the company's sales were from international markets, compared to $1.36 billion the year before.


Now, I'd like to briefly examine Harley's valuation, as analysts are projecting some serious growth for the company. HOG currently trades at 18.4 times 2012's expected earnings, which are up 17.2% from 2011. This sounds expensive until you realize that the consensus calls for earnings to increase to $3.41 and $3.87, or an 18.5% average annual growth rate over the three year period, more than justifying the multiple.

Assuming the consensus is accurate and that the P/E ratio remains constant (I believe it may even increase if the projected growth rate is accurate), I arrive at a 1-year target price of $62.74, or 25% above the current share price. Frequent readers of mine know that this is where I generally recommend a long term options trade, however in this case I think buying the stock is the best bet. I see HOG's growth continuing well into the future as the economy continues to rebound and the international sales grow. It is not unreasonable to envision Harley-Davidson as a $100 stock within the next several years if all continues to go well for the company.
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