Is Harley-Davidson (HOG) a Buy Before Its Q2 2025 Earnings Report? A Value Investing Case Amid Macroeconomic Headwinds

Harley-Davidson (HOG) has long been a symbol of American craftsmanship and rebellion. Yet, in 2025, the company finds itself at a crossroads, navigating a challenging macroeconomic landscape marked by high interest rates, shifting consumer preferences, and global trade tensions. For value investors, the question looms: Is HOG's stock, trading at a historic discount, a compelling buy ahead of its Q2 2025 earnings report?

The Contrarian Case: A Deep Discount Amid Earnings Momentum

Harley-Davidson's first-quarter 2025 earnings report revealed a mixed bag of results. Revenue fell 23% year-over-year to $1.33 billion, driven by a 33% decline in wholesale shipments and a 21% drop in global retail sales. However, the company's operating margin of 10.0% and a 32% EPS beat ($1.07 vs. $0.81 expected) signaled resilience in cost management. Despite the revenue shortfall, HOG's stock surged 4.64% in pre-market trading, reflecting investor optimism about its ability to navigate a weak environment.

The company's valuation metrics are equally compelling. At a trailing P/E of 6.8 and a forward P/E of 6.6, HOG trades at a significant discount to its historical averages and the S&P 500. Its price-to-book ratio of 0.92 suggests the market is pricing in a worst-case scenario, while its price-to-sales ratio of 0.64 is among the lowest in the automotive sector. These metrics align with classic value investing principles, which prioritize undervaluation amid strong balance sheet strength and consistent cash flow generation.

Peer Comparison: A Tale of Two Industries

While HOG's core motorcycle business struggles, its financial services segment (HDFS) remains a bright spot. HDFS generated a 19% year-over-year increase in operating income in Q1 2025, outperforming the broader industry. This contrast highlights HOG's strategic pivot toward non-core, higher-margin businesses—a move that could stabilize earnings in the near term.

However, HOG's peers in the motorcycle industry are faring better. For example, Yamaha and Honda have maintained healthier operating margins (12–14%) and higher global retail sales growth (3–5%) compared to HOG's 10.8% margin and 21% sales decline. These gaps underscore the challenges HOG faces in regaining its market share, particularly in Europe and Asia-Pacific, where its retail sales have plummeted by 28% and 26%, respectively.

The Macroeconomic Headwinds: Tariffs, Rates, and Consumer Sentiment

HOG's path to recovery is further complicated by external factors. The company projects a $130–$175 million tariff headwind in 2025, primarily from China, Mexico, and Canada. Additionally, high interest rates continue to dampen discretionary spending, a critical driver of motorcycle sales. The U.S. Touring segment, however, offers a glimmer of hope: HOG's market share rose to 74.5% in 2024, driven by the success of models like the Street Glide and Road Glide.

The LiveWire electric motorcycle division, a strategic bet on the future, remains a drag. With a 42% revenue decline and $20 million operating loss in Q1 2025, LiveWire's struggles highlight the risks of competing in a market dominated by Tesla and other EV pioneers.

A Value Investor's Playbook: Shareholder Returns and Strategic Resilience

Despite these challenges, HOG's commitment to shareholder returns is a key bullish argument. Since 2022, the company has returned $1.5 billion to shareholders through buybacks and dividends, including a $1 billion repurchase authorization through 2026. At a 12.0% shareholder yield, HOG outperforms the sector median of 0.2%, making it an attractive option for income-focused investors.

The company's $1.9 billion in cash and equivalents also provides a buffer against volatility, allowing it to fund its Hardwire strategy—a multi-year plan to streamline operations, reduce dealer inventory, and invest in capital projects. These initiatives aim to restore long-term growth while maintaining profitability in the short term.

Risks and Rewards: A Balanced Outlook

While HOG's valuation appears attractive, investors must weigh several risks:
1. Sales Momentum: Global retail sales are down 21% in Q1 2025, with no clear signs of recovery.
2. Tariff Impact: A $130–$175 million headwind could further pressure margins.
3. LiveWire Drag: The EV segment's losses may persist as competition intensifies.

However, HOG's strong brand equity, disciplined capital allocation, and undervaluation metrics suggest that the market is pricing in a worst-case scenario. If the company can stabilize its core business and execute its Hardwire strategy effectively, the stock could offer outsized returns for patient investors.

Final Verdict: A Buy for the Contrarian Investor

Harley-Davidson's Q1 2025 earnings report confirms what value investors have long suspected: the stock is trading at a deep discount to its intrinsic value. While macroeconomic headwinds and operational challenges persist, the company's strong balance sheet, aggressive buybacks, and strategic initiatives position it as a compelling long-term opportunity.

For investors with a 3–5 year horizon, HOG presents a high-conviction buy ahead of its Q2 2025 earnings report. The key will be monitoring its ability to reduce inventory, mitigate tariff impacts, and sustain HDFS performance. In a market where “risk off” sentiment dominates, HOG's undervaluation and resilient cash flow generation make it a rare gem worth considering.