Harley-Davidson Inc.: Dividend Discount Valuation
(3 pages of text)
Case (Pub Mat)
In late July 2018, a buy-side analyst at Dimensional Wealth Group (DWG), a privately owned investment management firm, needed to decide whether DWG should increase, decrease, or not change its position in Harley-Davidson Inc. (Harley-Davidson) stock. DWG had been bullish on its Harley-Davidson stock, leading DWG to increase its position in Harley-Davidson substantially over time. However, Harley-Davidson was currently facing several challenges, which suggested that the timing was appropriate for DWG to reconsider its bullish position. How should the analyst determine a suitable recommendation regarding the Harley-Davidson stock?
This case can be used in undergraduate- and graduate-level finance courses to introduce the single-stage dividend discount model (DDM) as a relatively simple and intuitive valuation tool. The case can also be used in more advanced finance courses by placing more emphasis on the multi-stage component of the DDM valuation. After working through the case and assignment questions, students will be able to do the following:
- Assess the opportunities and risks associated with investment in a company’s stock, considering strengths, weaknesses, opportunities, and threats.
- Reinforce financial statement analysis as an important tool for sizing up a company.
- Understand the key advantages and disadvantages, assumptions, and mechanics associated with using single- and two-stage DDMs to value a company’s stock.
United States, Large, 2018
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