Harley-Davidson's focus on bread-and-butter business can lift the stock by more than 30%, Morgan Stanley says

Published Tue, Mar 21 20237:43 AM EDTUpdated Tue, Mar 21 20231:56 PM EDT

It's worth hopping on Harley-Davidson due to the company's focus on the core business and better-off consumer, according to Morgan Stanley. Analyst Adam Jonas upgraded the motorcycle maker to overweight from equal weight. His price target of $50 implies the stock could gain 33.2% from where it closed Monday. "We upgrade HOG to OW on confidence in the Hardwire strategy, 'containment' of electrification risks and attractive valuation," Jonas said in a note to clients Tuesday. The stock was up 3.4% before the bell. But it's down 9.7% since 2023 began. Shares recently fell under $40. That's brought the stock to a 2023 fiscal year price-to-earnings multiple of less than 9 and a fiscal year 2024 PE ratio of 8. Compared with the historical average of 11.6 and the company's top-line growth and free cash flow yield, Jonas said the stock is too cheap following the sell-off. HOG YTD mountain Harley-Davidson Jonas also said he's increased his optimism given Chairman and CEO Jochen Zeitz's focus on generating cash flow from the core motorcycle business, while simultaneously managing risks related to spun-off electric motorcycle maker LiveWire . Jonas said Zeitz's business has a "back to basics" approach that's proving useful amid lingering supply chain challenges and a changing consumer spending outlook. As for its electric vehicle work, Jonas said he's increasingly bullish on Harley-Davidson's move to focus on generating cash and capital allocation rather than on what he called EV projects that are "unprofitable and unproven." He said the 2022 spinoff of LiveWire allows Harley-Davidson to focus on perfecting its bread-and-butter business and catering to the core base rather than trying to expand reach. And despite questions on future consumer discretionary spending, Jonas said the company's relatively higher-quality consumer will be better prepared for a downturn in the credit cycle. And Jonas said a chunk of the negative credit outlook is already priced in. — CNBC's Michael Bloom contributed to this report.