Analyst: Leverage buyout of Harley-Davidson ‘could work’

On Friday, HOG shares rallied 20 percent with credible sources, such as CNBC, MarketWatch, and Barron’s, reporting that private equity firm KKR may have interest in offering $65 per share to acquire the company.

Here’s how BMO Capital Markets analyst Gerrick Johnson summed up the rumors in a research note:

“We have no particular insights into the veracity of these reports, but given the company’s strong balance sheet, solid cash flow, superior brand name, and encouraging new product strategies, we think a leverage buyout could work. At minimum, a $65 deal would appear to be sustainable, with cash flow better than potential interest expense. Given an inexpensive valuation, if the acquirer could improve business performance, such a deal could provide value over time, in our opinion.

“We continue to rate the shares of Harley-Davidson Market Perform, but are raising our target to $54 from $50. Our estimate represents a 13x multiple on 2017 EPS estimate of $4.20, which is unchanged. We are increasing the earnings multiple we use in valuing HOG to 13x from 12x to account for the increased probability, even if it may be small, that the company could be ‘in play.’ Risks to our target include a decline in consumer confidence and spending or an inability to bring compelling new products to market on a timely basis.”

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One Comment

  1. Harley Davidson has its ups and downs.. What concerns me is the increased Harley dealerships closing and the movement within the market itself… people are just not coming back to Motorcycles since the 2008 disaster and we still have bumps to get over for the next few years…

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