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Analyst: Harley Good For Patient Investor

Harley-Davidson dealerships are reporting strong sales, a promising sign that motorcycle maker's turnaround is taking hold, analyst wrote.

DETROIT (AP) -- Harley-Davidson Inc. dealerships are reporting strong sales in the second quarter, a promising sign that the motorcycle maker's turnaround is taking hold as the slow economic recovery continues, an R.W. Baird & Co. analyst wrote on Monday.

Baird analysts contacted 54 of 650 U.S. Harley dealers, and 60 percent said they sold more new motorcycles in the first seven weeks of the quarter than a year earlier, with sales up in the low single digits. Harley is on track to grow sales in the second quarter for the first time since 2006.

"The question is, will the broader recovery gain traction to support growth in 2012?" asked analyst Craig Kennison.

Harley's CEO Keith Wandell slashed the company's cost structure during the recession and intensified its focus on core business. Harley still controls roughly 50 percent of the U.S. motorcycle market and has scale advantages over most competitors, Kennison wrote. It also has a big opportunity for international sales growth, and its strategy of limiting supply to maintain prices appears to be working. "Harley remains a top pick for patient investors," Kennison wrote. "Inventory is low, retail is on the brink of growth and a dynamic restructuring plan is gaining traction."

Kennison set a one-year stock price target of $50 per share for Harley and he sees earnings potential of nearly $3 per share by 2012 on shipments of 250,000 motorcycles. Earnings could rise to $3.50 to $4 per share on shipments of more than 300,000 motorcycles in the next cycle, he wrote. For the full year in 2010, Harley reported net income of $146.5 million, to 62 cents per share, versus a loss of $55.1 million, or 24 cents per share, in 2009.

Kennison gives the stock an "Outperform" rating, meaning that he expects it to outperform the broader U.S. equity market over the next year.

Before the market opened, Harley's stock was flat at $36.56. It has traded in a 52-week range of $21 to $43.

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