Harley-Davidson's ($HOG.US) earnings are poised for significant enhancement, primarily fueled by its recently announced share repurchase program and the strategic decision to relocate portions of its production operations to Thailand, as highlighted by UBS Securities in a recent market analysis. Late last month, the iconic motorcycle manufacturer surpassed Wall Street expectations in its second-quarter financial results, alongside detailing an ambitious strategy to repurchase up to $1 billion of its common shares through the year 2026. UBS projects that Harley-Davidson will execute share repurchases averaging approximately $1 billion between the latter half of 2024 and 2026.
This forecast indicates a considerable increase of roughly $270 million compared to the brokerage's previous expectations. Analysts at UBS estimate that the anticipated share buybacks could contribute an additional $0.53 to the company’s earnings per share (EPS), leading to an upgraded EPS outlook of $4.69 for 2026.
Should the buyback initiative amount reach the entire ($1 billion) threshold by the end of 2025, UBS analysts predict this could potentially elevate the 2026 EPS estimate by an incremental $0.19. In a strategic pivot, Harley-Davidson has also revealed plans to shift the production of its highly popular models, including the Pan America, Sportster S, and Nightster for the model year 2025, from the United States to Thailand.
According to UBS, this move is estimated to generate an annual savings of approximately $45 million, translating to an enhancement of $0.30 in EPS. It’s crucial to note that these savings are already integrated into the company's broader target of reducing $400 million in costs over multiple years. The transition to Thailand is anticipated to yield significant benefits for Harley-Davidson as they begin shipping the new bikes early next year.
According to UBS analysts, led by Robin Farley, the reduction in labor costs is a substantial advantage for the company. "We believe that the models mentioned accounted for roughly 10% of total bike sales in the past year; therefore, Harley is effectively cutting labor expenses on a significant fraction of its production," the analysts explained. Furthermore, considering the potential risk associated with tariffs on components sourced from China, manufacturing these parts in Thailand could potentially circumvent such tariffs when the completed bikes are exported to the US market, reflecting an added layer of strategic financial planning. In light of these developments, UBS has revised its EPS outlook for Harley-Davidson, increasing it to $4.02 from $3.96 for the fiscal year 2024, and to $4.35 from $4.08 for 2025 based on their recent assessments.
As part of this evaluation, the brokerage also raised its price target for Harley-Davidson's stock to $40 from $39 while maintaining a neutral rating regarding the stock's performance. In the trading session following the announcement, Harley-Davidson shares experienced a surge of 5.3%, closing at $38.07, reflecting a change of +1.79 or a percentage increase of +4.95..