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2009 Zacks Investment Research, All Rights reserved. www.Zacks.com 111 North Canal Street, Chicago IL 60606

Harley-Davidson Inc. (HOG-NYSE)

SUMMARY

SUMMARY DATA

Risk Level * Below Avg

Type of Stock Large-Growt

Industry Auto -Domest

Zacks Industry Rank * 218 out of 26

Current Recommendation NEUTRAL

Prior Recommendation Outperform

Date of Last Change 07/13/2010

Current Price (01/24/12) $43.32

Target Price $45.00

Harley-Davidson beat the Zacks Consensus Estimain the fourth quarter of 2011 by posting a profit of $0per share. Furthermore, its annual profit more thdoubled to $548.1 million or $2.34 per share. Tcompany expects to ship 240,000 to 245,0motorcycles globally to dealers and distributors in 201reflecting a 3% 5% increase from 2011, as it enjostrong brand loyalty through its franchise. HowevHarley-Davidson has an aging customer base. It ahas an expensive product range that attracts opremium consumers. These factors have led usmaintain our long-term Neutral recommendation a

set a target price of $45.

52-Week High $45.91

52-Week Low $32.10

One-Year Return (%) 11.02

Beta 2.17

Average Daily Volume (sh) 1,731,924

Shares Outstanding (mil) 232

Market Capitalization ($mil) $10,066

Short Interest Ratio (days) 5.20

Institutional Ownership (%) 84Insider Ownership (%) 1

Annual Cash Dividend $0.50

Dividend Yield (%) 1.15

5-Yr. Historical Growth Rates

Sales (%) -8.6

Earnings Per Share (%) -29.1

Dividend (%) -22.8

P/E using TTM EPS 18.5

P/E using 2012 Estimate 15.7

P/E using 2013 Estimate 13.6

Zacks Rank*: Short Term1 3 months outlook 3 - Hold

* Definition / Disclosure on last page

ZACKS CONSENSUS ESTIMATES

Revenue Estimates(In millions of $ and excludes Financial Revenues)

Q1 Q2 Q3 Q4 Year(Mar) (Jun) (Sep) (Dec) (Dec)

2010 1,207 A 1,309 A 1,260 A 1,084 A 4,690 A

2011 1,224 A 1,506 A 1,397 A 1,027 A 5,154 A

2012 1,149 E 1,393 E 1,324 E 1,061 E 4,927 E

2013 5,262 E

Earnings Per Share Estimates(EPS is operating earnings before non-recurring items, but including employee

stock options expenses)

Q1 Q2 Q3 Q4 Year

(Mar) (Jun) (Sep) (Dec) (Dec)

2010 $0.29 A $0.59 A $0.40 A -$0.18 A $1.10 A2011 $0.51 A $0.81 A $0.78 A $0.24 A $2.34 A2012 $0.64 E $0.88 E $0.82 E $0.42 E $2.76 E2013 $3.18 E

Projected EPS Growth - Next 5 Years % 11

January 26, 2012
http://www.zacks.com/


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Equity Research HOG | Page 2

RECENT NEWS

Harley Beats, Annual Profit Doubles January 24, 2012

Harley-Davidson Inc. posted a profit of $54.6 million or $0.24 per share in the fourth quarter of 2011 isharp contrast to a loss of $42.1 million or $0.18 per share in the same quarter of 2010. The profit wahigher than the Zacks Consensus Estimate of $0.22 per share.

For the full year 2011, Harley s profit more than doubled to $548.1 million or $2.34 per share from $259.million or $1.10 per share in 2010. The profit was close to the Zacks Consensus Estimate of $2.34 peshare.

The improvement in profits was attributable to the company s strong motorcycle sales and rebound consumer confidence in the U.S.

Motorcycles and Related Products

Revenues from Motorcycles and Related Products rose 12% to $1.03 billion, which compared with thZacks Consensus Estimate of $995 million. Revenues from motorcycle sales appreciated 13.5% t$791.9 million due to increase in shipments to 50,730 motorcycles in the quarter under study from 44,48

motorcycles in the fourth quarter of 2010.

Harley s worldwide dealer retail sales of new motorcycles escalated 10.9% globally to 40,359 unitincluding an 11.8% rise to 23,753 units in the U.S. and a 9.7% increase to 16,606 units in thinternational markets.

For the full year, revenues from Motorcycles and Related Products rose 11.6% to $4.66 billion, whiccompared with the Zacks Consensus Estimate of $4.64 billion. Revenues from motorcycles sales wenup 13.3% to $3.55 billion on shipments of 233,117 units to dealers and distributors worldwide, reflecting 10.7% increase from 2010.

Worldwide retail sales grew 5.9% to 235,188 motorcycles, including a 5.8% rise to 151,683 units in th

U.S., and a 6.1% increase to 83,505 units in the international markets during the year. This comparewith the increase of 4.3% in industry-wide U.S. heavyweight motorcycle (651cc-plus) retail unit sales fothe full year.

Revenues from Motorcycle Parts and Accessories (P&A) rose 7.9% to $161.2 million while revenuefrom General Merchandise, (including MotorClothes Apparel and Accessories) scaled up 12.8% to $69.million during the quarter.

For the full year, P&A revenues increased 9% to $816.6 million. Meanwhile, revenues from GeneraMerchandise sales went up 5.8% to $274.1 million during the year.

Gross margin was 31.2% in the quarter compared with 29.6% in the same quarter of 2010. Operatin

margin from motorcycles and related products was 3.5% on operating income of $35.6 million comparewith an operating loss of $6.8 million in the fourth quarter of 2010. For the full year, gross margin wa33.4% and operating margin was 12.0%, compared with 34.2% and 9.1%, respectively in 2010.

Harley-Davidson Financial Services (HDFS)

The Financial Services segment recorded an operating income of $56.8 million in the quarter undestudy, a 30.6% increase from $43.5 million in the year-ago quarter. The increase in income wa


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attributable to continued improvement in credit performance at HDFS. For the full year, operating incomfrom financial services surged 47.8% to $268.8 million from $181.9 million in 2010.

Restructuring Activities

In 2011, Harley-Davidson realized cumulative savings of $217 million from restructuring activities thabegan in 2009, which is in line with company estimates of $210 million $230 million. Upon completionthe company continues to expect restructuring activities to generate annual ongoing savings of $31million to $335 million, beginning in 2014.

For the full year 2011, Harley-Davidson incurred one-time restructuring charges of $68.0 million. Thcompany expects restructuring activities to result in one-time charges between $500 million and $52million through 2013, including $50 million to $60 million in 2012.

Financial Position

Harley s cash and cash equivalents totaled $1.53 billion as of December 31, 2011 compared with $1.0billion as of December 31, 2010. Total debt increased to $3.64 billion as of December 31, 2011 from$3.00 billion as of December 31, 2010 (all excluding debt held by variable interest entitiesConsequently, long-term debt to capitalization ratio deteriorated slightly to 60% as of December 31, 201from 57.6% as of December 31, 2010.

In 2011, Harley had an operating cash flow of $885.3 million, a decrease from $1.16 billion in the prioyear. Meanwhile, capital expenditures increased to $189.0 million in the year from $170.8 million in 2010

Share Repurchase

Harley repurchased 3.5 million shares of common stock for $127.0 million during the quarter. At the enof 2011, the company had outstanding common stock of approximately 230.5 million and 18.6 millioshares remaining to be repurchased under the board-approved share repurchase authorizations.

Outlook

Harley-Davidson expects to ship 240,000 to 245,000 motorcycles globally to dealers and distributors i2012, reflecting a 3% 5% increase from 2011. In the first quarter of 2012, the company anticipates tship 58,000 to 63,000 motorcycles.

For the full year, Harley-Davidson expects gross margin between 34.75% and 35.75%. The companalso expects capital expenditures between $190 million and $210 million in 2012, which includes $2million to support restructuring activities.

VALUATION

Currently, shares of Harley-Davidson are trading at 15.7X our 2012 EPS estimate of $2.76. Thcompany s current trailing 12-month earnings multiple is 18.5, compared with the 12.4 average for thpeer group and 13.9 for the S&P 500. Over the last five years, shares of Harley-Davidson have traded ia range of 3.6X to 66.3X trailing 12-month earnings. The stock is also trading at a premium to the peegroup, based on forward earnings estimates. The current P/E, which is in the lowest quartile of thhistorical range, is at a 43% premium to the peer group for 2012. Our long-term Neutral recommendatioon the stock indicates that it will perform in line with the market. Our $45 target price, 16.3X our 201EPS estimate, reflects this view.


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Key Indicators

P/EF1

P/EF2

Est. 5-YrEPS Gr%

P/CF(TTM)

P/E(TTM)

P/E5-Yr

High(TTM)

P/E5-YrLow

(TTM)

Harley-Davidson Inc. (HOG) 15.7 13.6 10.5 11.4 18.5 66.3 3.6

Industry Average 11.0 23.2 15.6 8.2 12.4 75.8 5.5S&P 500 12.8 12.3 10.7 11.9 13.9 27.7 12.0

PACCAR Inc. (PCAR) 13.4 10.7 23.5 15.2 18.8 157.7 8.8Ford Motor Co. (F) 8.2 6.9 8.1 3.3 6.3 68.8 4.8Tesla Motors Inc. (TSLA) N/A 59.0 25.0 N/A N/A N/A N/A

TTM is trailing 12 months; F1 is 2012 and F2 is 2013, CF is operating cash flow

P/BLastQtr.

P/B5-Yr High

P/B5-Yr Low

ROE(TTM)

D/ELast Qtr.

Div YieldLast Qtr.

EV/EBITDA(TTM)

Harley-Davidson Inc.

(HOG) 3.6 6.4 1.1 18.7 1.6 1.3 14.7

Industry Average 4.2 4.2 4.2 45.3 3.3 0.5 1.8S&P 500 3.9 5.2 2.9 24.2 N/A 2.1 N/A


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Earnings Surprise and Estimate Revision History

NOTE THIS IS A NEWS-ONLY UPDATE; THE REST OF THIS REPORT HAS NOT BEEN UPDATED YET.


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OVERVIEW

Milwaukee-Wisconsin based Harley-Davidson, Inc. (HOG) is the world s leading designer anmanufacturer of heavyweight motorcycles and related products and merchandise.

Harley-Davidson, Inc. is the parent company for the group of companies doing business undeMotorcycles and Related Products (86% of total revenue in 2010) and Harley-Davidson FinanciaServices or HDFS (14%). The Motorcycles and Related Products segment includes Harley-DavidsoMotor Company (HDMC) and Buell Motorcycle Company (Buell). In the third quarter of 2010, thcompany has divested its subsidiary, MV Agusta.

Harley-Davidson Motor Company produces heavyweight custom, touring and cruiser motorcycles. Bueproduces American sport performance motorcycles. The motorcycles are sold primarily in North AmericaEurope, Asia-Pacific and Latin America. All these segments also manufacture a line of motorcycle partand accessories, including replacement parts, and mechanical and cosmetic accessories; generamerchandise, such as apparel and collectibles; and related services.

Harley-Davidson Financial Services conduct business principally in the U.S. and Canada. The divisioprovides wholesale and retail financing and insurance programs primarily to Harley-Davidson and Bue

dealers and customers.

REASONS TO BUY

Harley-Davidson commands roughly 50% of the U.S. market, providing scale advantages over mostcompetitors. Furthermore, the company maintains an extremely strong franchise. It has a network ofover 680 independent U.S. dealers (over 1,300 worldwide), 55% of which exclusively market Harley-Davidson.

Harley-Davidson s restructuring activities, incorporated in its go-forward business strategy, have beesuccessful since its inception in 2009. The company already divested its MV Agusta unit during ththird quarter of 2010. It will also discontinue its Buell product line in the near future. The restructuringplan also included consolidation of production facilities and a reduction of approximately 2,700 t2,900 hourly production positions and about 720 non-production, primarily salaried positions, withithe Motorcycles segment, as well as about 100 salaried positions in the Financial Services segmenThe headcount reductions, which began in 2009, are expected to be completed by 2011. Thcompany anticipates savings of $210 million to $230 million in 2011 and $305 million to $325 millioin 2012 from restructuring activities. It continues to expect annual ongoing savings of $290 million t$310 million, beginning in 2013, upon completion of the restructuring activities.

Harley-Davidson s cash flow and debt position have improved. In 2010, the company had a

operating cash flow of $1.16 billion, a significant improvement from $609 million in the prior yeadriven by an improvement in profit. Furthermore, its long-term debt decreased to $2.96 billion as oMarch 31, 2011 from $3.26 billion a year ago. Consequently, the long-term debt to capitalization ratideclined to 56% from 61% a year ago.


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REASONS TO SELL

Harley-Davidson has an aging customer base. The company has not been able to attract youngegenerations, who are driven toward smaller and cheaper bikes such as those made by Japanesmanufacturers Honda, Suzuki and Yamaha. The company s strategy to focus on faster, smaller biksegments by acquiring Buell and MV Agusta failed.

Harley-Davidson has an expensive product range, which attracts only premium consumers. Th

problem has become more pronounced due to lower consumer purchasing power in the curreneconomic environment.

Although the company s close competitors, including Honda Motor and Suzuki, do not have dominant market position in the U.S. compared to Harley-Davidson, they often have greater financiaresources. This is largely because companies such as Honda have more diverse product lines anare greater in size than Harley-Davidson, which operates in a niche market.

The global economic crisis continues to mar the company s shipments. For full year 2010, Harleyshipments decreased 5.6% from 2009, when the company shipped 223,023 units. Worldwide retasales of Harley-Davidson motorcycles dipped 8.5% from 2009. Retail sales of Harley-Davidsomotorcycles fell 11.7% in the U.S. and 1.9% in the international markets. Further, given the supp

chain interruption arising from the March 11 earthquake and tsunami in Japan, Harley expects to shi215,000 to 228,000 motorcycles to dealers and distributors worldwide in 2011 compared with thprior shipment guidance of 221,000 to 228,000 motorcycles. It also expects gross margin to bbetween 33.5% and 35.0% in 2011, versus previous guidance of 34.0% to 35.0%.

StockResearchWiki.com The Online Stock Research Community

Discover what other investors are saying about Harley-Davidson (HOG) at StockResearchWiki.com:

http://www.stockresearchwiki.com/tiki-index.php?page=HOG/Ticker

DISCLOSURES & DEFINITIONS

The analysts contributing to this report do not hold any shares of HOG. The EPS and revenue forecasts are the Zacks Consensuestimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personviews as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirect

related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in threport is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as taccuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meethe particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as aoffer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for thsecurities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six ttwelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelvmonths. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. Thcurrent distribution of Zacks Ratings is as follows on the 1054 companies covered: Outperform - 16.2%, Neutral - 76.1%, Underperform 5.9%Data is as of midnight on the business day immediately prior to this publication.
http://www.stockresearchwiki.com/tiki-index.php?page=HOG/Ticker


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Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The modassigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. ZacRank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness ofcompany s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on eacstock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5th group has the highevalues and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to thsecond, third, and fourth groups of stocks, respectively.

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