Harley-Davidson Displays Impressive Heavyweight Profitability Gains; Livewire Off to Slow Start

We plan to raise our $47 fair value estimate for wide-moat Harley-Davidson by a mid-single-digit rate after digesting fourth-quarter results and see shares as fairly valued after a high-single-digit post-print pop. While we think that shares have rallied on an improving profit outlook for the company, we believe that the enterprise value is inextricably tied to the electric business, which is likely to drag on total performance over the next few years. Harley printed a strong fourth quarter, with sales rising 12% to $1.14 billion, as shipments at the motor company segment (heavyweight bikes) rose 18%. Higher volume and prices led to better profitability, with the segment printing a motorcycle operating margin decline of 3.5%, a 680-basis-point year-over-year improvement in the seasonally small quarter. However, both the financial services (HDFS) and LiveWire (LW) segments struggled. HDFS operating income declined 32% (below our estimated 21% downtick), suffering from higher losses and funding expenses. LW shipments contracted 63% and segment operating margin loss of $29 million was wider than the $20 million loss in the year-ago period given limited shipments (69 units).