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PACCAR Gains on Rising Demand for Trucks, Costs Hurt

Zacks Equity Research

On Jul 9, we issued an updated research report on PACCAR Inc. PCAR.

Headquartered in Bellevue, WA, the company manufactures light, medium and heavy-duty trucks. It is the leading manufacturer of heavy-duty trucks in the world. Additionally, the company is known for providing support to its customers by supplying aftermarket parts along with finance and leasing services.

The company is witnessing an increase in demand for Class 8 trucks in the United States and Canada. Class 8 truck industry retail sales grew 23% on a year-over-year basis, in first-quarter 2019. Sustained economic and freight growth in North and South America as well as Europe is adding to the demand for Class 8 truck. This is driving PACCAR’s truck retail sales.

The company also follows an active capital deployment policy. PACCAR has been paying out dividend each year since 1941. In April 2019, the company announced a quarterly dividend of 32 cents.

The company also engages in the manufacturing and development of new products. It holds a salient position in the key markets on the back of strategic investments, R&D and strong cash flow. The company also has an expanded Trailer Parts program (TRP) based store networks that help it expand its global distribution network and increase brand awareness.

In the first quarter of 2019, PACCAR posted adjusted earnings per share of $1.81, which beat the Zacks Consensus Estimate of $1.66. Quarterly consolidated net sales and revenues rose 15% year over year to $6.14 billion. The Zacks Consensus Estimate for revenues was pegged at $6 billion.

However, there are several headwinds that can affect the company’s performance.

Declining prices of used trucks due to excessive supply is a threat. Rising commodity prices along with high labor and material costs are other concerns. Higher costs are likely to exert pressure on the company’s margin.

Additionally, the company faces stiff competition in the commercial truck market. Its major competitors are based in the United States, Canada and Europe.

In the past six months, PACCAR has outperformed the industry it belongs to. During the same time frame, the company’s shares have increased 18.8% against the industry’s decline of 5.1%.

Zacks Rank & Other Stocks to Consider

PACCAR carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the auto space are Ford Motor Company F, CarMax, Inc KMX and AutoZone, Inc AZO. While Ford sports a Zacks Rank #1 (Strong Buy), CarMax and AutoZone carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ford has an expected long-term growth rate of 7.3%. In the past six months, shares of the company have gained 15%.

CarMax has an expected long-term growth rate of 12.57%. In the past six months, shares of the company have rallied 34.7%.

AutoZone has an expected long-term growth rate of 12.2%. In the past six months, shares of the company have shot up 38.9%.

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