PACCAR A Battleground Between Strong Demand And Concerns About Margins And A Near-Term Peak

 

Cyclical stocks can be challenging in the best of the times, and forecasting gets especially interesting when established rules about the cycles appear to be changing. That’s the issue I see with PACCAR (PCAR) – the pandemic and supply shortages that started in 2021 have absolutely altered the normal trajectory of the heavy truck cycle, but so too may be the ongoing growth in e-commerce. On top of all that, while orders are looking healthy, it remains to be seen how fleet operators will respond to what could be double-digit price increases in 2022.

When I last wrote about PACCAR (roughly a year ago), I wasn’t excited about the potential and I said it was a name to reconsider on a meaningful pullback. The shares then declined about 15% through the fall before beginning a rebound that has brought the shares back to where they were at the time of that last article.

I’m more bullish than a year ago, but not bullish enough to want to own the shares here, as the Street is still concerned about peaking orders and the ongoing impact of component shortages and input cost inflation. I think fair value is in the high $90’s to low 100%’s ($97 to $102), but I would like either a wider margin of safety (a share price in the $80’s) or a little more visibility on the 2023 book before getting more bullish.

 

Continue here: 

PACCAR A Battleground Between Strong Demand And Concerns About Margins And A Near-Term Peak

The Market Already Anticipates PACCAR's Recovery

Heavy machinery stocks have enjoyed a strong rebound on the improving outlook for 2021, with names like Caterpillar (CAT), Deere (DE), and Terex (TEX) performing well over the last year (up 60% to 90%). PACCAR (PCAR), though, has been a different story, with the shares outperforming the broader industrial space but underperforming cyclical heavy machinery peers.

Some of the problem may be PACCAR’s quality. Paradoxical as it sound, cyclical rallies often don’t benefit superior operators quite as much, and PACCAR has an excellent track record relative to the broader heavy machinery space where metrics like long-term margins, cash flow, and returns on assets are concerned.

Given that Cummins (CMI), another exceptional company, has managed to outperform (though not as much as non-truck heavy machinery companies), though, it may well be something more PACCAR-specific, including worries about margin pressures and a shorter run to the next peak in the truck cycle.

I could see PACCAR retesting and surpassing its recent 52-week high, but I don’t see that much upside left in this upcycle and peak-to-trough moves in these shares have often seen the price decline by roughly a third. This would definitely be a name I’d revisit on a sell-off, but I don’t like the risk/reward trade-off right now.

 

Follow this link to the full article: 

The Market Already Anticipates PACCAR's Recovery

Improving End-Markets And Market Share Not Enough For Cummins

Investors are definitely conflicted about machinery stocks these days, with mining and ag doing well, but a lot less enthusiasm for construction and trucking as investors worry about how the end of the cycle will play out. I didn’t see enough upside in Cummins (CMI) to want to dive in back in late May, and the market-lagging return since then doesn’t exactly have me regretting that call (though Cummins has done comparatively better than most heavy machinery names over that time).

I can’t say that I feel all that differently about Cummins now. The North American truck cycle looks like it has longer legs (into 2019), but that doesn’t really change the fundamental long-term valuation picture. Likewise with the long-awaited recovery in power gen and strength in markets like mining and oil/gas. Although the shares do look a little undervalued on a near-term basis and I like the company’s ongoing moves to invest in electrification products/technology, I just don’t see the upside to warrant taking a new position now.

Read the full article here:
Improving End-Markets And Market Share Not Enough For Cummins

Allison Transmission Grinding Through A Rough Patch

The North American commercial truck market is still in pretty rough shape. While August vehicle orders showed sequential growth for both Class 8 trucks (up 37%) and Class 5-7 trucks (up 10%), both were down on a year-over-year basis (down 29% and down 5%, respectively). For Class 8 trucks, that's a year and a half of consecutive Y-O-Y declines in the monthly numbers, while Class 5-7 trucks have seen negative annual comps in three of the last four months.

That's a tough backdrop for Allison Transmission (NYSE:ALSN), the leading manufacturer of automatic transmissions for heavy-duty vehicles, but Wall Street has minded too much. While the shares are down a bit over the past year, they are up almost 20% from my last article, just a little below Cummins (NYSE:CMI) and Twin Disc (NASDAQ:TWIN), though the latter has been much more volatile. Investors seem to be encouraged by Allison's ability to retain strong share and good margins through this downturn, as well as the prospects for increased share on product roll-outs by customers like Navistar (NYSE:NAV) and PACCAR (NASDAQ:PCAR).

I still like Allison. It's not tremendously undervalued relative to the operating and macro risks, but it is priced for double-digit returns. More to the point, management seems to be following a sensible plan and one that I think can add share in important under-penetrated markets like metro Class 8 and international over time.

Read more here:
Allison Transmission Grinding Through A Rough Patch

Seeking Alpha: Cummins And The Cyclical Overcorrection Conundrum

We all knew that Cummins (NYSE:CMI) was a cyclical stock (unless you're new to investing and this was your first stock … in which case, 'surprise!'), but one of the trickiest parts of evaluating cyclical stocks is correctly estimating/guessing the length and depth of those cycles. The sell-side has dutifully taken its whacking stick to its fair value estimate for this truck engine and components manufacturer, with the average target price down from $155 last spring to around $98 today, but that strikes me as overdoing it.

To be sure, Cummins is definitely at risk of share loss in its core truck engine market, and likewise at risk of finding its components business misaligned with the market trends. Moreover, it's entirely reasonable for a fair value to decline when the near-term prospects worsen and those revenues and profits are pushed out into future years. Still, if Cummins can manage to average just 3.5% revenue growth over the next decade and move its FCF margin closer to 8%, a fair value of around $120 seems fair today.

Click here to continue:
Cummins And The Cyclical Overcorrection Conundrum

Seeking Alpha: For Ever-Volatile Maxwell, New Markets Must Start Placing Orders

Maxwell Technologies (NASDAQ:MXWL) shares have always been volatile, but the direction of that volatility has been decidedly negative over the last year. Investors have grown increasingly frustrated over the erratic performance of the company's Chinese hybrid bus market and the lack of significant orders or momentum in supposed-to-be-big markets like autos, trucks, and trains.

As speculations go, this could be an interesting stock for aggressive investors to consider. The company now counts PACCAR (NASDAQ:PCAR) as an OEM heavy duty truck customer and management has been guiding to greater auto adoption in the 2016 model year. Admittedly there is still frustratingly little substance for these shares to trade on, but that's the nature of emerging/speculative tech and the long-term rewards could still prove meaningful.

Continue reading here:
For Ever-Volatile Maxwell, New Markets Must Start Placing Orders

Seeking Alpha: Cummins Revving Up For The Next Truck Cycle

There's no doubting now that the operating environment for the North American Class 8 truck industry is getting better, and Cummins (CMI) stands to be a major beneficiary. European and Chinese truck markets are also looking stronger, helping to offset weakness in other areas like Brazilian trucks and power generation. Cummins shares are already up about 28% over the past year, and BorgWarner (BWA) and Dana (DAN) may offer a little extra relative performance, but I wouldn't rush to take profits just yet.

Read the full article at Seeking Alpha:
Cummins Revving Up For The Next Truck Cycle

Seeking Alpha: Navistar On Better Footing, But Still Shaky

Turnaround stories rarely ever follow a smooth upward arc and Navistar (NAV) is proving no exception. Management has laudable progress with cost reductions, design improvements, and a generally more realistic approach to running this business, and Wall Street has noticed - taking the shares up about 50% over the past year.

As a look at the chart will reveal, though, that hasn't been a stepwise progression and shares have both risen and fallen sharply on quarterly results. This quarter looks like no exception, as investors aren't liking the shortfall in revenue or quarterly market share, nor the reduced EBITDA guidance for the next quarter. Navistar shares look like an iffy value prospect today, and investors who wish to own these shares now need to make their peace with the above-average volatility that is likely stretch on into 2014.

Follow this link for the full article:
Navistar On Better Footing, But Still Shaky

Seeking Alpha: Commercial Vehicle Still Idling

Unlike truck builder PACCAR (PCAR) and commercial vehicle engine builder Cummins (CMI), Commercial Vehicle Group (CVGI) has yet to benefit the market's willingness to overlook tough current conditions in the trucking industry and transition to the recovery/rebound. But with about one-quarter of the company's sales coming from the construction sector, and construction-exposed companies like Caterpillar (CAT) and Deere (DE) still lagging, perhaps that's not entirely unreasonable.

Commercial Vehicle Group's new CEO is saying all of the right things. The company is going to focus on greater market diversification and greater customer penetration (selling more components to the same customers), continue to look for accretion deals, and aggressively extend operations in areas like China and India. At the same time, management continues to operate a relatively flexible operating structure, and is considering further changes to its manufacturing footprint to reduce costs. That all sounds good, and the shares do seem undervalued, but it's likely to leave the market unimpressed until and unless the company starts beating analyst targets again.

Continue reading here:
Commercial Vehicle Still Idling

Investopedia: Navistar In Early Stages Of Turning It Around

I don't know if the nearly 60% move in Navistar (NYSE:NAV) over the past six months is due to Wall Street's confidence in Navistar's turnaround efforts or investors simply looking around for a stock that seemed a little undervalued. In any case, it seems harder to argue that investors aren't already factoring in a pretty solid recovery for this struggling truck builder. An industry recovery in 2014 could certainly help, but investors shouldn't underestimate the challenges in rebuilding customer confidence and regaining the market position of years past.

Please read more here:
http://www.investopedia.com/stock-analysis/061113/navistar-early-stages-turning-it-around-nav-cmi-pcar-volvy.aspx

Investopedia: Navistar Is Terrible Today, But That May Not Be Relevant

There was absolutely no reason to think that the fiscal fourth quarter was going to be a good one for truck builder Navistar (NYSE:NAV), and it certainly was not a good one. The real question for investors, though, is whether this company can hit its new product launch targets, streamline its manufacturing process and rebuild the share that management missteps destroyed over the past couple of years. This continues to look like a binary stock to me - if management can direct a real turnaround, the shares will thrive from here, but survival (and success) are far from assured.

Continue reading here:
http://www.investopedia.com/articles/active-trading/12/navistar-is-terrible-today-but-that-may-not-be-relevant.asp

Seeking Alpha: Can Navistar Pull Itself Out Of The Ditch?

Arguably the only thing more remarkable than the share growth Navistar (NAV) saw in the first decade of this century has been how quickly it all went wrong when the company decided to break with the pack and pursue its own engine emissions technology. The company has seen since the error of its ways, and though the profitability of the "new" In-Cylinder Plus Technology and the agreement to use Cummins (CMI) engines are uncertain, the company can at least start thinking about getting back to the business of being a respectable truck builder.

Continue reading here:
Can Navistar Pull Itself Out Of The Ditch?

Investopedia: The Navistar Mess Gets Messier

It hasn't been easy to follow, or own, heavy-duty truck builder Navistar (NYSE:NAV) over the last four years. Not only has the company had to deal with the normal deep cyclicality of the heavy truck market and the big changes in the defense market, but also self-inflicted challenges brought about by breaking with Cummins (NYSE:CMI) and developing its own engine technology.

With the fiscal second quarter results in hand, it's pretty clear that we are not even close to a "steady state" with Navistar. Significant erosion in overseas markets has made investors nervous about the sector as a whole, but the company's ongoing warranty and Environmental Protection Agency (EPA) compliance issues continue to occupy management's time and unnerve customers.

Read the full piece here:
http://stocks.investopedia.com/stock-analysis/2012/The-Navistar-Mess-Gets-Messier-NAV-CMI-PCAR-ETN0611.aspx

Seeking Alpha: Cummins Is At The Top Of The Mountain; Where Can It Go Next?

The peculiar illogic of Wall Street sometimes means that you're better off buying companies with plenty of room for improvement, as opposed to those that run themselves with laudable efficiency. In the case of Cummins (CMI), it's fair to ask whether the company really has enough dry powder left to significantly surpass Wall Street expectations and drive a higher valuation. Although the emerging market growth story has ample room left to run, it's worth wondering if Cummins' core engine business in North America and Europe has already seen the best of times.

Please continue here:
Cummins Is At The Top Of The Mountain; Where Can It Go Next?

Investopedia: Trying To Make Sense Of Navistar

Cyclical stocks are notoriously difficult to value, as very few analysts or investors can accurately measure the length and amplitude of the cycle. In the case of Navistar (NYSE:NAV), it gets even more difficult as the company continues to develop its own engine program and work towards better internal efficiency. While Navistar is a stock with above-average risk, a strong rebound in the truck cycle could push these shares up substantially.

A Stuttering Start to the Year  
Navistar's first quarter earnings were a real mess. Revenue was alright, as sales (excluding financing) rose nearly 12% from last year. Truck revenue jumped 20%, while engine revenue fell 13% and parts revenue ticked up 5%.

Continue here:
http://stocks.investopedia.com/stock-analysis/2012/Trying-To-Make-Sense-Of-Navistar-NAV-PCAR-CMI-BWA0313.aspx

Seeking Alpha: Cummins Earnings Show The Company Has Another Gear

Underestimate Cummins (CMI) at your own risk. Although there has been plenty of talk about how tough conditions in Europe and China's inflation fears will lead heavy machinery demand to stagnate, companies like Caterpillar (CAT), Eaton (ETN), and PACCAR (PCAR) keep reporting an inconvenient truth that business is holding up pretty nicely. Much as I admit buying a cyclical industrial like Cummins at these levels makes me nervous, it's hard to argue with the performance and the potential.

A Mostly Solid Fourth Quarter
All in all, Cummins handily surpassed analyst expectations for the quarter. Revenue rose 19% (and 6% sequentially) and beat the average Wall Street guess by almost 5%. Growth was led by a very strong result in engines, where top-line growth was 23% and external growth was 25%. Components also did well, growing 19% this quarter. Power was the laggard, though, and up just 2% while distribution revenue rose 19%.

To read more, please follow this link:
Cummins Earnings Show The Company Has Another Gear

Seeking Alpha: Cummins - A Rockier Road In 2012?

Sometimes a company executes its plan so well that you almost forget that it still operates in a cyclical industry outside of its control. Such seems to be the case with diesel engine and power generator manufacturer Cummins (CMI). Although Cummins management has done a great job of emphasizing free cash flow growth and economic returns, to say nothing of international exposure that many companies dream of, the fact remains that several major markets are looking shaky or at best long in the tooth.

A Tale Of Three Fleets?
For the most part, major North American commercial truck builders like Navistar (NAV), PACCAR (PCAR) and Daimler have been pretty optimistic on the market conditions for new truck builds in 2012. Credit is pretty cheap and even if the trucking industry isn't going gangbusters, it still needs to update fleets.

Please click the link for more:
Cummins: A Rockier Road In 2012?

Investopedia: Miller Industries - A Great Little Company That No One Knows

Sometimes good opportunities literally drive past you on the highway and you take no notice of them. Take the case of tow trucks. If you drive, you probably see a few every week if not every day. But do you ever stop to think about who makes them, or whether there's any money to be made there in a stock portfolio? Investors who can live with the volatility and risk that goes with small-cap stocks should definitely take a look at Miller Industries (NYSE:MLR) - an industry leader that almost nobody seems to know about. (For more, see Earning Forecasts: A Primer.)

A Simple Business, Handled Well  
Miller Industries is the largest manufacturer of tow truck and vehicle recovery equipment, and the owner of well-known (within the industry, at least) brands like Century and Vulcan. Importantly, Miller does not actually manufacture the underlying trucks. Miller's bodies and equipment are mounted on third-party truck chassis like those made by Navistar International (NYSE:NAV), PACCAR (Nasdaq:PCAR), Daimler (OTCBB:DDAIF.PK) and Volvo (OTCBB:VOLVY.PK) and then sold to customers in the vehicle recovery basis.

Read the full piece here:
http://stocks.investopedia.com/stock-analysis/2012/Miller-Industries--A-Great-Little-Company-That-Nobody-Knows-MLR-NAV-PCAR-OSK0112.aspx

Seeking Alpha: A Bumpy Ride For Commercial Vehicle In 2011

Arguably the nicest thing that can be said about Commercial Vehicle Group (CVGI) for 2011 is that the company was not alone and performance could have been even worse. Although heavy duty truck production rebounded well in 2011, major truck and truck component manufacturers had a thoroughly miserable year. Down nearly 50%, CVGI's year was bad, but then so too were those of Accuride (ACW) (down almost 60%), Navistar (NAV) and PACCAR (PCAR) (both down about 35%), and even the oft-popular Cummins (CMI), whose stock is down about 20%.

With truck production in 2012 still looking fairly solid at this point, is a rally in truck-related stocks in the cards? Perhaps even more to the point, is Commercial Vehicle Group the way to play that rally?

Please follow this link for the full piece:
A Bumpy Ride For The Commercial Vehicle In 2011

Investopedia: Better Still Not Good Enough For Navistar

This has been a tough year for companies with high exposure to the heavy-duty truck industry. Navistar (NYSE:NAV) has long had its own issues, though, including a messy balance sheet, problems with its new engine, and a generalized difficulty in producing strong economic returns. Although the company's shares are undervalued relative to what it could accomplish, management has a lot yet to prove.

Mixed Results to Close the Year  
Navistar missed analyst expectations on the top line, but not by a large amount. Overall growth of 28% wasn't bad, with operating revenue (excluding financing revenue) up 29%. Performance was pushed by 36% growth in trucks, while parts revenue rose 16% and engine revenue rose almost 9% on a 14% increase in shipments. Military revenue rose 36% this quarter and made up close to 20% of the quarter's revenue.

Please follow this link for more:
http://stocks.investopedia.com/stock-analysis/2011/Better-Still-Not-Good-Enough-For-Navistar-NAV-PCAR-VOVLY-CMI-OSK-ETN-KNX1221.aspx