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"In fact," he adds, "Harley-Davidson doesn't have a single major U.S-based competitor -- something very few companies can claim."
The value investor explains, "For those that do enjoy riding on the open road, Harley-Davidson is practically a lifestyle unto itself. With over 1,300 dealerships in 60 countries around the world, the firm has carved out an impressive share of the heavyweight motorcycle market and delivered record revenues for 20 consecutive years."
Slaughter continues, "Founded in 1903, the company now boasts over one million members in the Harley Owners Group (HOG) and enjoys an intensely loyal customer base that few rivals have been able to penetrate.
"And like other companies with entrenched brand names, Harley-Davidson is able to command premium prices for its products. As a result, margins have expanded dramatically and earnings have consistently outpaced revenues -- climbing 23% annually over the past decade.
"This
built-in
competitive
advantage
also
shows
up
in
lofty
returns
on
capital
that
currently
stand
above
30%.
Better
still,
the
shareholder-friendly
management
team
isn't
shy
about
returning
excess
cash
to
shareholders.
In
fact,
the
company
repurchased
19.3
million
shares
last
year,
and
dividends
have
been
hiked
in
each
of
the
past
13
years.
Slaughter continues, "Though domestic sales have slowed somewhat as of late, overseas demand remains strong. Last quarter, for example, sales were up +9% in Japan, 11% in Europe, and more than 20% in other foreign markets.
"And because many foreign distributors have signed exclusivity agreements, we think this segment of the business will remain a bright spot for years to come.
"Overall, the company is doing a great job of converting inventory into sales, turning over its merchandise about 12 times per year -- well above the industry average of 7. Of course, all of this should translate into continued rewards for shareholders.
"Consider this remarkable fact: a modest $1,000 invested in HOG at the end of 1986 would now be worth a staggering $230,000 -- versus just $9,300 for the S&P 500. Going forward, we think Harley-Davidson will only strengthen its status as a cultural icon, and its shares could remain a growth engine for years to come."
Nov 19th 2007 9:58AM by Steven Halpern
