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On Friday, Raymond (NSE:RYMD) James reiterated a Market Perform rating on Harley-Davidson (NYSE:HOG) following reports that the company is exploring the sale of its financial services arm, Harley-Davidson Financial Services (HDFS). The potential deal, which may be valued at over $1 billion, is being considered as a strategic move to potentially enhance shareholder value. According to InvestingPro data, HOG currently trades at an attractive P/E ratio of 6.4x, suggesting potential value opportunity despite the stock's recent 37% decline over the past six months.
The financial services subsidiary, which had a total loan book of nearly $7.3 billion at the end of 2024, contributed approximately 60% to Harley-Davidson's consolidated operating profit last year, amounting to $248 million. Despite the significant role of HDFS in the company's financials, the industry trend shows that having an Original Equipment Manufacturer (OEM) with its own finance subsidiary is becoming less common. InvestingPro analysis reveals the company maintains a solid financial health score of 2.35 (FAIR), with particularly strong scores in profitability and relative value metrics. For deeper insights into HOG's financial health and 12+ additional ProTips, consider exploring InvestingPro's comprehensive analysis tools.
The potential sale of HDFS comes at a time when Harley-Davidson's Chairman, President, and CEO Jochen Zeitz announced his intention to retire earlier this week, with the search for his successor currently underway. This transition could influence the decision-making process regarding the sale.
HDFS has played a crucial role in supporting Harley-Davidson's premium brand image by offering attractive financing rates to customers, a practice which has led to HDFS financing 71% of new Harley motorcycle sales in the U.S. in 2024. The separation of HDFS from Harley-Davidson could impact this dynamic, although it might also unlock value for the company by isolating its remaining assets.
In 2024, HDFS's revenue rose by 27% since 2022 to $1.04 billion, while operating profit declined by 22%, with further decreases expected in 2025. The valuation of HDFS, when compared to companies like Ally and Synchrony, suggests a sale price around $1.04 billion. Assuming a 20% tax on the sale, the net proceeds for Harley-Davidson could be approximately $828 million.
Considering Harley-Davidson's market capitalization of over $2.7 billion, which saw an increase on the news, and the financials of RemainCo, which includes Harley-Davidson Motor Company (HDMC) and its majority-owned electric bike subsidiary LiveWire, the potential sale of HDFS could leave the company with a pro forma enterprise value of just over $1.5 billion. Notable strengths include the company's impressive 33-year streak of maintaining dividend payments, with a current yield of 3.35%. InvestingPro subscribers can access detailed valuation models, comprehensive financial metrics, and expert analysis through the Pro Research Report, helping investors make informed decisions during this strategic transition. This valuation is based on a forecasted operating income of $208 million for RemainCo, including a $75 million loss for LiveWire, and a flat year-over-year depreciation and amortization of $151 million, resulting in an EBITDA of $359 million. However, under the assumption of a more challenging year with a 25% reduction in EBITDA, the valuation could adjust to 5.7 times EBITDA.
In other recent news, Harley-Davidson is reportedly considering the sale of its finance arm, Harley-Davidson Financial Services, potentially fetching $1 billion. The company is working with an adviser to explore interest from potential buyers, including regional banks and private equity firms, though no final decision has been made. Meanwhile, Raymond James has maintained a Market Perform rating on Harley-Davidson stock, following a survey indicating an estimated 18% decline in U.S. retail sales year-over-year for the first quarter of 2025. This decline is attributed to macroeconomic challenges, including high interest rates affecting discretionary spending.
DA Davidson has initiated coverage on Harley-Davidson with a Buy rating and a $31 price target, reflecting confidence in the company's strategic initiatives. In leadership news, CEO Jochen Zeitz has announced plans to retire in 2025, prompting the company to begin a search for his successor in the fourth quarter of 2024. Zeitz will continue as CEO until a suitable replacement is found to ensure a smooth transition. The search is conducted with the help of an executive search firm, and the Board has expressed gratitude for Zeitz's contributions, including his role in the development of the Hardwire strategic plan. These developments come as Harley-Davidson continues to navigate the current economic landscape and plan for future growth.
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