Having been as high as $62.07 at the start of December 2016, Harley-Davidson’s share price staged a remarkable rally in the final three months of 2016.
From being seemingly moribund and vulnerable at $49.70 on October 17th, around the time that Harley’s third quarter 2016 fiscals were due for release, it closed out 2016 at just under the $60.00 mark to post a 20 percent recovery in the final quarter of 2016, and a remarkable 58 percent recovery from its 2016 low last January of $37.23.
Speculation continues to swirl connecting the share price recovery to the activities and intentions of any one of a number of hostile riders whose names have been connected with making a move on Harley, not least (despite denials) with Kohlberg Kravis and Roberts (KKR), who are believed in some quarters to have the Milwaukee based manufacturer locked into their cross-hairs as a long-term “target of opportunity.”
Specializing in leveraged buyouts and headquartered in New York, KKR was founded by a group of Bear Stearns alumni in 1976. Early pioneers of the leveraged buy-out concept while at the now defunct Wall Street investment bank, KKR is best known for deals such as the 1989 RJR Nabisco buy-out in 1989 (at that time the largest such transaction ever seen). Since that time KKR has had considerable media and high tech involvements, not least making a sizeable investment in Sun Microsystems around 10 years ago.
However, whether or not KKR’s fingerprints are on the 2016 Harley share price recovery is a moot point, because regardless of whether or not it is being driven by one particular investor or general sentiment, the performance out-performs the market, even in the post-election weeks, by a considerable margin and points to Harley’s assiduous attention to investor welfare as having been money well spent, even if some of the effort has had workforce number implications.
In fact, in cycle terms, Harley’s share price performance in 2016 follows that of other powersports industry businesses such as Polaris, Yamaha and Kawasaki quite closely – the primary difference being though that those others are diversified enterprises – Harley remains a “one trick pony”.
There remain those who think that going private may not actually be such a bad thing for Harley-Davidson. However, Harley has played a smart game. Adding debt to fund its share buy-backs has reduced the headroom for an LBO, and having managed expectations by lowering guidance three times since the end of 2014, the better than anticipated October earnings data has rewarded the company’s conservatism. Contrary to what many have been thinking, the signals are that the company is after all successfully positioning itself to be able to fend off any unwanted suitors – or to at least make it as difficult as possible for them.
Working on the basis that any player in the North American powersports industry has enough product and demand issues to keep it busy without the distractions of stock owner disquiet, it would appear that Harley is headed into 2017 and towards hugely important full-year finings late in January in considerably better shape than might otherwise be the case.
The company can hardly be described as being “headwind proof,” but whatever lies ahead, it might just be that Harley has laid down a foundation from which it can better deal with 2017 market realities, and from which it has a fighting chance of being able to deal with any unwanted attentions from stock raiders.
With a growing sense that the motorcycle industry may well now start seeing some recovery in North America (in Europe the market continues to grow annually at north of six percent), especially as the dust settles following the most acrimonious and destabilizing election cycle ever seen, research projects such as that by the likes of Freedonia may not be too wide of the mark.
Three years ago, they forecast that worldwide growth in demand for motorcycles would be at the rate of around 6 percent through 2018, with the market being worth some 132 million units and $120 billion. It is clear that Harley-Davidson has been benefitting from international market growth, and if their 2016 fiscals at least show a picture that has largely stabilized over 2014 and 2015, then expect to see the share price head back towards the record low $70 mark it achieved in May 2014, and maybe towards its November 2006 all-time record high of just under $75.00.