NEW YORK (AP) -- A Morgan Stanley analyst started coverage of Harley-Davidson with an "Overweight" rating on Monday, saying that the motorcycle company has managed to transform its business so that its production matches demand better.
Adam Jonas said in a client note that smaller capacity should allow Harley-Davidson to make more efficient use of its capital when the economy is doing well, and provide for more resilient margins when the economy starts to falter.
While the company has cut 36 percent of its motorcycle unit employees, Jonas said that the trimmed job force has enabled Harley-Davidson to provide its dealers with "the right bikes at the right time" while also helping dealers avoid having too much stock on hand.
Jonas said that there may also be some potential for Harley-Davidson overseas — but that it could take some time. While the company is doing well in Brazil and is establishing a foundation in India, the analyst said China could possibly take a decade to become a significant factor.
"Navigating a Softail Fat Boy through Beijing traffic (and pollution) is very different from driving a comfortable, climate controlled BMW 7-Series," he wrote.
While emerging markets penetration may take some time, Jonas said that efforts to expand its customer base are showing some promising signs — with 50 percent of Harley-Davidson's 2012 customers new to the brand.
Shares of Harley-Davidson gained 61 cents, or 1.1 percent, to $54.96 in afternoon trading. Its shares have traded in a 52-week range of $37.84 to $55.68.