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Harley-Davidson

Name

Institutional affiliation

Date
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1. Describe Harley-Davidson’s strategy. In your opinion, how likely is the strategy to

drive growth?

The basis of Harley-Davidson’s strategy has focused primarily on building a strong

relationship between their customers and the brand. They reinforce that they are not simply

selling a motorcycle, but an overall experience and lifestyle (Grant, 2019). This strategy has

been successful for the most part, but as time has gone on, it has become apparent that

attracting new customers is necessary for increased growth both within the United States and

nationally.

2. Using a constant growth dividend model, what growth rate in dividends is implied

by the current share price of $44.48? How does this growth rate compare with rates

implied from consensus analyst forecasts in case Exhibit 8? Use the following

assumptions to calculate the growth rate:

a. Required return is 8%

b. Constant growth rate is 3%

3. Using information provided in the spreadsheet and in the case, calculate an intrinsic

price for Harley-Davidson stock. Use the non-constant growth dividend model and

the following assumptions:

a. After 2026, dividends are expected to increase by 3% per year

b. Required return is 8%

Solution

Price = dividend/(1+required rate)^n

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= 1.47/(1+0.08)^1 + 1.50/(1+0.08)^2 + 1.56/(1+0.08)^3 + 1.80/(1+0.08)^4 + 1.95/(1+0.08)^5 +

2.10/(1+0.08)^6 + 2.22/(1+0.08)^7 + 2.35/(1+0.08)^8 + 2.49/(1+0.08)^9 + [2.49 ×

(1+0.03)/(0.08 - 0.03)]/(1+0.08)^9

= 1.47/(1.08) + 1.50/(1.08)^2 + 1.56/(1.08)^3 + 1.80/(1.08)^4 + 1.95/(1.08)^5 + 2.10/(1.08)^6 +

2.22/(1.08)^7 + 2.35/(1.08)^8 + 2.49/(1.08)^9 + [2.49 × (1.03)/(0.05)] /(1.08)^9

= 1.47/1.08 + 1.50/1.1664 + 1.56/1.2597 + 1.80/1.3605 + 1.95/1.4693 + 2.10/1.5869 +

2.22/1.7138 + 2.35/1.8509 + 2.49/1.9990 + [2.5647/0.05]/1.9990

= 1.36 + 0.90 + 1.2384 + 1.323 + 1.3272 + 1.32 + 1.2954 + 1.2697 + 1.2456 + 51.294/1.9990

= 11.2793 + 25.6598

= $36.94

4. As Basu, what recommendation would you make regarding the attractiveness of

Harley-Davidson stock for DWG?

Harley-Davison has a great product with a loyal brand following. The Harley-Davison bike has

become an American icon, which foreign competitors cannot match despite years of trying. In

addition, H-D is a financially healthy company with minimal debt and they’ve continued to

improve operating performance regardless of the economic climate. Based on these factors, as

well as favorable valuations from the DDM model we feel that the company should be rated a

“Buy”
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Harley-Davison will be a good addition to our portfolio given the conservative nature and

objectives of the Graduate Fund. We recommend purchasing 200 shares of H-D stock at a price

at market price. We believe that 200 shares is proper given the fact that the stock has risen in

recent months and is no longer significantly undervalued. However, we believe the stock has

some upside potential and is good long-term investment. No stock in the Graduate Fund is

significantly correlated with Harley Davison