Harley-Davidson Stock Up 13% Today – Time to Buy HOG Stock?
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The price of Harley-Davidson stock is surging 13% in pre-market stock trading action this morning following news that the company will take public its all-electric motorcycle brand LiveWire through a merger with a special purpose acquisition company (SPAC).
According to the press release published just minutes ago, the transaction will produce a total of $545 million in net proceeds to LiveWire to keep assisting the company in expanding its operations and go-to-market model across the world.
The pro-forma enterprise value of LiveWire was established at $1.77 billion while the post-money equity value reportedly stands at $2.3 billion once the transaction is settled.
Harley-Davidson is expected to maintain a 74% stake in the business following the completion of the merger with AEA-Bridges Impact Corp (ABIC). The transaction is expected to close during the first semester of 2022.
“Today’s announcement is a historic milestone with LiveWire set to become the first publicly traded EV motorcycle company in the U.S.”, stated Jochen Zeits, the Chairman, President, and CEO of Harley-Davidson.
He added: “By building on Harley-Davidson’s 118-year lineage, LiveWire’s mission is to be the most desirable electric motorcycle brand in the world, leading the electrification of the sport”.
Can today’s uptick result in the beginning of a strong rally for HOG stock during what remains of 2021 and forward? In this article, I’ll be assessing the price action and fundamentals of this beloved motorcycle company to outline plausible scenarios for the future.
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Harley-Davidson Stock – Technical Analysis
Back in November when I last wrote about Harley, the stock experienced a sizable uptick following news that the company expected to see a reduction in the impact that import tariffs in the European Union had on its sales in that particular region.
The strong 9% single-day uptick that took place back then favored a short-term bullish outlook for the stock as long as the price broke above the 200-day moving average. However, the price action took a pause shortly afterwards and failed to overcome that particular threshold.
Today, the price is surging above that mark in pre-market action and this increases the odds that a full-blown trend reversal could take place as the falling wedge formation would play out as expected more than a month after the pattern was broken.
Momentum indicators remained fairly stalled ahead of this announcement with the Relative Strength Index (RSI) standing at 45 while the MACD slightly drifted to negative territory.
Moving forward, if the price of Harley-Davidson stock jumps above the 200-day simple moving average, chances are that this could be the beginning of a rally for the US-based motorcycle manufacturer.
Harley-Davidson Stock – Fundamental Analysis
During the first nine months of the 2021 fiscal year, the cruiser motorcycles segment – which includes sales of LiveWire® – experienced a 22% jump compared to the same period a year ago and accounted for 32.7% of the firm’s total unit sales.
It is unclear how much the carrying value of LiveWire was on Harley-Davidson’s books. However, the reaction of the market today after this news came out points to the possibility that the value of Harley Davidson’s equity stake in the standalone company will increase significantly.
Harley’s market cap closed last Friday at $5.7 billion. If the firm will retain an equity stake of 74% in LiveWire and the post-money equity value is expected to stand at $2.3 billion, that would result in a carrying value of around $1.7 billion for Harley.
This represents 30% of the firm’s market capitalization and would result in a valuation of $4 billion for the firm’s core business – its fuel-powered motorcycles. If we assume that 67% of Harley’s net earnings come from other businesses excluding LiveWire, that would give us a forward P/E ratio of 6.5x using analysts’ forecasted earnings per share for HOG stock for 2022.
This is quite a conservative ratio assigned to a company with such a strong brand and whose growth prospects are fairly promising especially now that this LiveWire deal has been completed as the standalone company can use the capital it is raising to expand its reach in the following years.
All things considered, the outlook for HOG stock is bullish from both a fundamental and technical standpoint.
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