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Oshkosh: The USPS Award Adds Another Layer of Quality

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The US Postal Service took its time deliberating who will win the coveted contract to replace its aging delivery fleet. While the losers will bemoan the months waiting in suspense, for the winner – Oshkosh (OSK) - the long wait will matter little.

After several delays on the final decision, on Tuesday, the company was awarded the USPS NGDV (next generation delivery vehicle) contract to build between 50,000-165,000 units over the next 10 years.

Unsurprisingly, according to Colliers analyst Michael Shlisky, the specialty truck maker is thrilled with the outcome.

“Our discussions with OSK revealed that the company is excited about the 10 years of steady revenues, the chance to produce an "iconic" vehicle, and the Parts/ Service opportunity down the road,” the analyst said. “Importantly, the deal has an EV component, as well as ICE vehicles.”

How much the contract is worth was not revealed, but Shlisky reckons that, taking inflation into account since the RFP (request for proposal) went out in 2015, it could be in the $6.5 billion region or even closer to $7 billion.

The production will fall under Oshkosh’s Defense segment, for which Shlisky thinks the deal offers “good diversification.” Additionally, the company believes the chance to design an “iconic” vehicle should provide a boost for the Oshkosh brand.

“Net/net,” Shlisky summed up, “Much like the JLTV and other Defense awards, we view the USPS NGDV deal as another high-quality addition to this high-quality company's portfolio.”

That said, production is only slated to kick off in late FY23, and accordingly, Shilsky’s current OSK estimates remain unchanged for now.

However, once the contract is underway, and the Parts & Service business starts generating income, Shilsky believes the company’s EBITDA will grow by approximately 10%, which is reason enough for a new price target.

The figure rises from $110 to $120. Yet, following the news-driven share price jump, it implies shares will remain rangebound for the foreseeable future. Shlisky’s rating stays a Buy. (To watch Shlisky’s track record, click here)

Overall, almost all analysts reviewing Oshkosh regard the company as a quality play; The stock has a Strong Buy consensus rating with only 1 Hold countering 12 Buys recommendations. However, Shares are fairly priced as the $118.67 average price target is only ~4% away from where the stock is currently trading. (See OSK stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.