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The rising demand for raw materials has led to a substantial increase in the demand for cargo trucks over the past couple of months. As manufacturing and industrial production continues to rise, we think truck manufacturers Paccar (PCAR) and Oshkosh (OSK) should be able to generate solid revenues and earnings. But let’s evaluate which of these stocks is a better buy now.
Paccar Inc. (PCAR) is a global technology leader that designs and manufactures high-quality light-, medium- and heavy-duty trucks under the Kenworth, Peterbilt and DAF brand name. The company also designs and manufactures advanced diesel engines, provides financial services and information technology, and distributes truck parts related to its principal business.
Oshkosh Corporation (OSK) is a leading designer, manufacturer and marketer of a broad range of specialty access equipment, commercial, fire & emergency and military vehicles and vehicle bodies worldwide.
The rising demand for raw materials amid a recovering economy has been boosting the demand for trucks for cargo transportation. Furthermore, the recovery of manufacturing and industrial activities should lead to rising demand for transportation vehicles. Most truck companies are investing heavily in technology and electric solutions to enable clients to track their shipments, enhance customers’ operational efficiency and reduce carbon-emission.
While PCAR lost 1.2% over the past month, OSK surged 13.1%. In terms of their past year’s performance, OSK’s is a clear winner with 124.4% gains versus PCAR’s 40.4% returns. But, which of these stocks is a better pick now? Let’s find out.
On April 6, PCAR announced a five-year supply agreement with Romeo Power, Inc. (RMO), a California-based leading battery technology company, to purchase Romeo Power’s battery packs and battery management software for PCAR’s heavy-duty battery electric Peterbilt 579EV vehicles and Peterbilt 520EV refuse trucks. This partnership will enhance PCAR’s zero emissions product offerings and improve its customers’ operational efficiency.
In January, PCAR and Aurora signed a global, strategic agreement to develop, test and commercialize autonomous Peterbilt and Kenworth trucks. The company hopes its autonomous vehicle platform with the Aurora self-driving technology Aurora Driver will enhance its customers’ safety and operational efficiency and generate good sales in the next several years.
In its fiscal year 2020 sustainability report released on May 7, OSK has been able to reduce normalized greenhouse gas emissions by 21.4% since 2014 and diverted 83% of waste from landfills. The company is striving toward its sustainability goals with the launch of electric products and reduced energy usage.
In February, OSK partnered with ALLETE Clean Energy, an ALLETE, Inc. (ALE) Subsidiary, in a renewable energy sale agreement to develop a wind energy site in Oklahoma. OSK announced a planned investment in Microvast, a global provider of next-generation battery technologies for commercial and specialty EVs, to develop and introduce electric solutions in all its business segments. Both partnerships are likely to improve its product pipelines and foster expanded market reach.
Recent Financial Results
PCAR’s total sales and revenues for its fiscal year 2021 first quarter, ended March 31, increased 13.2% year-over-year to $5.85 billion. Its sales and revenue from the truck segment increased 12.4% year-over-year to $4.22 billion. The company’s gross profit was $607.30 million, which represented a 31.4% year-over-year improvement. Its net income increased 30.8% year-over-year to $470.10 million. And its EPS increased 31.1% from the prior-year period to $1.35. The company has cash and cash equivalents of $3.32 billion as of March 31, 2021.
For its fiscal year 2021 second quarter ended March 31, OSK’s net sales rose 5.1% year-over-year to $1.89 billion. Its gross profit increased 7.8% year-over-year to $315.10 million. Its adjusted operating income came in at $143.30 million, up 7.3% from the prior-year period. However, its adjusted net income increased 18.3% year-over-year to $102.30 million. And its adjusted EPS increased 18.4% year-over-year to $1.48. The company had cash and cash equivalents of $1.09 billion, as of March 31, 2021.
Past and Expected Financial Performance
PCAR’s tangible book value rose at a 7.8% CAGR over the past three years, while its EPS declined at an 8.6% CAGR over this period.
Analysts expect PCAR’s revenue to increase 91.6% in the current quarter (ending June 30, 2021), 32.7% in the current year and 12.3% next year. PCAR surpassed the Street’s EPS estimates in three of the trailing four quarters. Its EPS is expected to increase 223.3% in the current quarter, 57% in the current year and 19.9% next year. PCAR’s EPS is expected to grow at a rate of 25.2% per annum over the next five years.
In comparison, OSK’s tangible book value rose at a 21% CAGR over the past three years, while its EPS declined at a 0.4% CAGR over this period.
Analysts expect OSK’s revenue to increase 39.9% in the current quarter, ending June 30, 14.9% in the current year, and 8.7% next year. OSK has surpassed the Street’s EPS estimates in each of the trailing four quarters. Also, its EPS is expected to increase 75.4% in the current quarter, 38.3% in the current year, and 24.8% next year. Furthermore, its EPS is expected to grow at a rate of 24.3% per annum over the next five years.
PCAR’s trailing-12-month revenue is 2.84 times OSK’s. However, OSK is more profitable, with a 16% gross margin compared to PCAR’s 12.7%.
However, PCAR’s 11.1% EBITDA margin compares favorably with OSK’s 8.4%.
In terms of non-GAAP forward P/E, OSK is currently trading at 20.05x, 25.9% higher than PCAR’s 15.93x. And OSK’s 0.96x non-GAAP forward PEG is significantly higher than PCAR’s 0.81x.
But, in terms of forward EV/EBITDA, PCAR’s 14.80x is higher than OSK’s 12.08x.
Both PCAR and OSK have an overall B rating, which equate to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.
Both companies have a C grade for Quality, which is justified by their slightly higher-than-industry profit margins.
PCAR has a C grade for Value. This is justified because its forward EV/EBITDA of 14.80x is 12.5% higher than the 13.15x industry average. However, OSK has a B grade for Value. This is in sync with the company’s lower-than-industry forward EV/EBITDA.
Of the 53 stocks in the B-rated Auto & Vehicle Manufacturers industry, PCAR is ranked #19, while OSK is ranked #12.
Beyond what we’ve stated above, our POWR Ratings system has also rated both PCAR and OSK for Momentum, Sentiment, Stability and Growth. Get all PCAR ratings here. Also, click here to see the additional POWR Ratings for OSK.
A global semiconductor shortage has caused some companies to delay their truck deliveries in the first quarter of 2021. However, both PCAR and OSK are striving to introduce technology and electric trucking solutions, and thus have the potential to capitalize on the rebounding transportation sector. However, we think PCAR’s higher revenue and earnings growth potential make it a better investment bet.
Our research shows that the odds of success increase if you bet on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to view the top-rated stocks in the Auto & Vehicle Manufacturers industry.
PCAR shares were unchanged in after-hours trading Tuesday. Year-to-date, PCAR has gained 6.25%, versus a 10.54% rise in the benchmark S&P 500 index during the same period.
Paccar is part of the Entrepreneur Index, which tracks 60 of the largest publicly traded companies managed by their founders or their founders’ families.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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