The first time you hear the sound of a Harley-Davidson (NYSE:HOG) engine, that recognizable drone sticks with you. Even on a crowded city street, it cuts through the other traffic noise -- or at least, Harley-Davidson hopes so. Having rewarded its shareholders handsomely over the past year, with its stock appreciating just less than 42% over that time frame, Harley-Davidson's hoping that a new line of urban-focused cycles will keep that growth going.

Targeting a younger generation
Whether in apparel or motorcycles, urban is "in." Harley Davidson aims to capitalize on this trend with its Street 750 and Street 500 Dark Custom motorcycles, which offer a range of features designed both for attractive style and the demands of riding in tighter quarters. These cycles' lean, mean designs are based on thousands of hours of input from young adults across many cities around the world, and should show up in dealerships in 2014. If the launch goes well, Harley could sustain its recent trend of impressive performance. 

In the third quarter, Harley-Davidson saw earnings per share increase 23.7% year over year, based on higher shipments of motorcycles and operating efficiencies. Revenue increased 7.5%, thanks to increased retail motorcycle sales of 15.5% worldwide, and a 20.1% increase in retail motorcycle sales in the United States.

This improvement, in turn, owed primarily to retail sales of Project Rushmore motorcycles. Many people think Harley's push for newer, better cycles was driven by Polaris Industries' (NYSE:PII) relaunch of its popular Indian motorcycles, but that timing wouldn't add up. Whatever the case may be, the Project Rushmore initiative has led to a host of revamped Harley bikes that offer improvements in power, brakes, styling, and technology.

Given the new urban bikes Harley's introducing next year, the company's top line could keep on growing. Bottom-line improvements are also likely. The restructuring program that Harley began in 2009 is expected to lead to $305 million in savings in FY 2013, followed by $320 million in annual savings beginning in FY 2014. 

Overall, it looks like Harley-Davidson is heading in the right direction.  

Peer comparisons  

The aforementioned Polaris remains a real threat to Harley-Davidson -- but a lot of its potential to steal Harley's market share will depend on both companies' financial strength. 

Harley-Davidson is a moderately larger company, sporting a market cap of $14.97 billion, versus a market cap of $9.73 billion for Polaris. This gives Harley-Davidson superior marketing power.

It would appear as though Harley-Davidson is leveraged, with $775.20 million in cash and short-term equivalents vs. $5.18 billion in long-term debt. However, the majority of that debt ($4.07 billion) is attributed to Harley-Davidson Financial Services, a source of financing for Harley-Davidson motorcycles purchased at retail. This service also provides wholesale financing for dealers. Furthermore, Harley-Davidson generated $902.89 million in operating cash flow over the past 12 months. Therefore, the company should be capable of paying off its debts

Polaris doesn't have such a concern, with $387.70 million in cash and short-term equivalents vs. $107.22 million in long-term debt. The company generated $542.79 million in operating cash flow over the past year. Therefore, paying down debts should be relatively easy, leaving more capital available to support top-line growth.

The bottom line

Harley-Davidson might not have the most ideal debt situation throughout the recreational vehicles industry, but it does have the most recognizable brand. It's also seeing top-line and bottom-line improvements, and its recent innovations are likely to lead to increased demand, especially since it's targeting the in-trend urban market.

Harley-Davidson is very sensitive to consumer confidence and discretionary income levels, which leads to a lot of volatility. However, as long as it keeps on turning out popular bikes for an ever-broader range of potential riders, Harley-Davidson should remain a long-term winner.