Indian Chief Takes On Venerable Harley Motorcycle

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How do you jump-start growth in a 112-year-old motorcycle brand that's been operating in low gear?

AskPolaris Industries ( PII ) CEO Scott Wine, and he'll tell you all about it. Wine oversaw the power-sports giant's 2011 buyout of Indian Motorcycle, which suffered from a long history of struggles ranging from changing owners to bankruptcies.

Now, after spending 2-1/2 years re-engineering and overhauling the Indian bikes and their engines, Polaris will reveal the fruits of its labor with the launch of the all-new 2014 Indian Chief heavyweight motorcycle at the 73rd annual Sturgis Motorcycle Rally in Sturgis, S.D., Aug. 3.

The redesigned Indian Chief, the flagship of the iconic brand's product line, is powered by Polaris' new Thunder Stroke 111 V-Twin engine. The bike will be available at a starting price of $18,999.

Chasing Harley

Polaris already has a strong position in the motorcycle market with its Victory brand, which is the world's No. 2 seller of the heavyweight motorcycles behind kingpinHarley-Davidson ( HOG ). By acquiring Indian, Wine saw the opportunity to become a major player in the space, where Victory has a low-single-digit market share.

"We realized that the two brands together would give us a formidable motorcycle business," Wine told IBD in an interview prior to the launch.

He sees the Indian Chief as a product that will rev up Polaris' position in the motorcycle space and help it better compete with Harley-Davidson.

Harley-Davidson, says Wine, is a "formidable competitor" with more than 80% of the market. But it has not had any competition from an "iconic" brand in the industry. That's where the new Indian Chief comes in. Polaris took what it's learned from building the Victory brand from the ground up and applied it to developing the Indian Chief.

"The bike will be fantastic," said Wine. "You have an iconic brand with the most powerful engine going into a heavyweight motorcycle."

Wine wouldn't go into much detail about the new bike pre-launch. But Polaris, which makes all-terrain vehicles (ATVs), snowmobiles and motorcycles, has racked up a strong track record on the product front.

Polaris is the world leader in off-road vehicles with a 40% market share in side-by-side vehicles, says Wine.

"We win with great products, and we will bring a great product to this category," he said.

He says the Indian Chief looks beautiful and rides "incredibly well."

As for the revenue opportunity, over the next three to four years, Polaris could see $500 million to $1 billion in sales between the Indian and Victory brands, with much of that coming from Indian, he says.

Wedbush Securities analyst Rommel Dionisio is upbeat about the prospects for the Indian brand and the Indian Chief.

Polaris, he says, brought to market very "excellent" product design and high-quality motorcycles under the Victory brand.

"They're bringing the technology prowess they've developed over the last several years to new designs they've developed for Indian," he said. "The big opportunity is the launch of the Indian Chief. The marketplace has high expectations for them to make quite a splash with this new entry."

There's strong brand-name recognition with Indian, which has a good reputation among motorcycle enthusiasts and enjoys a cult following.

Polaris, he adds, has a strong record of execution with very "solid performing" motorcycles under the Victory brand.

Meanwhile, Polaris boasts a strong track record with its current lineup. It's been on a long-running winning streak of double-digit sales and profit growth.

Analysts polled by Thomson Reuters expect the company to stay on the fast track when it reports second-quarter results on Tuesday before the bell. They see earnings rising 13% to $1.11 a share and expect sales to increase 11% to $838.75 million.

Dionisio says he sees the potential "acceleration" in sales in the back half of the year amid major product launches in the third and fourth quarters, including the launch of the Indian Chief, as well as launches of new off-road vehicles.

Wine says that Polaris had a "decent" first quarter and it has guided for a "decent" second quarter. But it's guided for a stronger second half of the year when it will unveil a lineup of new products.

Analysts expect full-year earnings to rise 19% to $5.23 a share. They see a 15% jump in 2014.

But taking on Harley-Davidson will be a challenge.

"Harley is a very entrenched competitor in the marketplace with a loyal global following," said Dionisio.

"The big challenge is to try to take some of the share away from Harley. That remains to be seen."

He says it's possible that within a year of the launch of the Indian Chief, it could very well have a revenue run rate approaching, if not exceeding $100 million annualized.

Wine aims to have 120 to 140 dealers for the Indian Chief by the end of 2013. He says that could grow to 300 to 400 dealers over time.

Shares On A Tear

Polaris' stock has been racing ahead, with its shares currently touching a new all-time high.

Why the run-up in the stock?

The market expects Polaris to launch some major products in the third and fourth quarters -- off-road vehicles as well as the Indian Chief, says Dionisio.

Wine says Polaris has several new off-road vehicles coming out this summer.

Polaris has scored big wins with new products, with 73% to 74% of revenue typically coming from products introduced in the last three years, says Wine.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: HOG , PII

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