Harley-Davidson (HOG) Oil Line Recall: 57,000 Motorcycles

According to a report from Milwaukee Journal Sentinel, Harley-Davidson Inc. is recalling about 57,000 motorcycles worldwide due to an oil line defect which causes the line to become loose and spray in front of the rear wheel. 

As the article states:

"The recall covers certain 2017 Electra Glide Ultra Classic, Police Electra Glide, Police Road King, Road King, Road King Special, Street Glide, Street Glide Special, Road Glide and Road Glide Special motorcycles built from July 2 through May 9."

The recall is expected to start this coming Tuesday, and dealers will inspect the oil lines of certain motorcycle models and fix them free of charge.

In a separate statement, a spokesperson for Harley-Davidson said, "This is a voluntary recall in the interest of customer safety."

harley davidson bad news bike
Harley-Davidson bike with the phrase "Bad News" displayed on the body.

Harley-Davidson ($HOG) Q1 Performance

In the first quarter of 2017, Harley-Davidson had global retail sales of 55,049 motorcycles. The company's first quarter US retail sales were 33,316, representing 60.5% of total retail sales. On a year-over-year basis (yoy), global retail sales declined 4.2%, and US retail sales declined 5.7%. First quarter revenue from "Motorcycles and related products" was $1.32 billion-- down from $1.57 billion in the first quarter of 2016. Q1 revenue from financial services remained unchanged year-over-year at $173 million.

Q1 Diluted EPS: $ 1.05

Q1 Cash Dividends per Common Share: $ .365

Stock Price as of Friday, June 2, 2017 in After-Hours Trading: $ 53.24 

HOG Stock Rating

Harley-Davidson stock (HOG) trades at a relatively conservative basis to its trailing twelve-month (ttm) earnings, with a ttm P/E ratio of 15.21. At its current stock price, HOG offers shareholders a 2.74% annual dividend yield, but over the last 4 years it has raised its dividend at an average annual rate of 18.45%. 

Despite Harley-Davidson's slight slowdown in first quarter sales, the stock trades at a discount to the overall market and has stable cash flows. Interestingly, HOG stock has not taken part of the Trump rally. Considering most of its manufacturing facilities are located in the US, the company is likely to experience the benefits of protectionism and a lower corporate tax rate over the next 3-7 years. 

Under these considerations, Harley-Davidson stock inherently offers a larger margin of safety for investors concerned with a correction in the overall stock market. Therefore, we are adding HOG to the Stock Trader Blog's List of Bullish Opinions. Personally, I expect a moderate price drop in HOG during Monday and Tuesday trading hours. The downward trend may stretch into following weeks, but on a long-term investment horizon, HOG stock appears undervalued.


Eric Bruin

Eric Bruin

Founder. Kelley School of Business ’17. Write about stocks and business news. Contact for business inquiries or to write articles for The Stock Trader Blog.

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