Paccar: Why More Improvements Are On the Way for This Truck Maker

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Nov 30, 2014

Paccar (PCAR, Financial) recently released strong results for the third quarter. The company impressed everyone with strong growth in revenue and net income. Paccar’s strong results were due to strong truck sales in the U.S. and Canada. The company’s management is now confident of a better performance in the coming quarters. Paccar is confident as it sees rising demand for trucks and aftermarket parts in the coming year. With the future looking bright, Paccar seems well on track with its strategies and plans. Let us have a closer look.

A closer look at the results

Paccar posted revenue of $4.93 billion, beating analysts’ estimates of $4.55 billion. It reported profit of $371.4 million. On the earnings front, Paccar posted EPS of $1.04 per share, while analysts had been modelling $0.97 per share.

The company is pleased due to growing sales for trucks and aftermarket parts. It posted a good 17% improvement in sales, which is a key indicator of growing demand for the future. The company now looks well positioned for a better performance in the coming quarters. It is now focused on reaping the benefits of the booming truck market.

Robust growth opportunities

Paccar sees robust growth opportunities in truck and aftermarket sales. North America and Canada remain its key growth markets. The company is pleased with the economic growth in these regions. The record freight tonnage, improving freight rates, and excellent operating efficiency of its new Kenworth and Peterbilt models in the construction markets are the key growth drivers which can help Paccar improve its market position. This is a great opportunity for Paccar as it is anticipated that U.S. auto sales are projected to be over 16 million vehicles.

On the international front, Paccar sees good growth opportunities. In the U.K., the market is expected to improve economically by 3%. This will lead the automotive segment to improve, driving automotive sales. The company is expecting Euro 6 vehicles to remain in strong demand. With this, Paccar will have bright opportunities for a good financial performance.

In the U.S and Canada, which are its key markets, it is expecting retail sales for class 8 vehicles to be in the range of 245,000 to 255,000 units, which is the highest level since 2006. This robust boom in the market presents a profitable opportunity for Paccar in future in the class 8 vehicles category.

The truck market is showing good signs of growth. But Paccar should also keep a watch on the moves its rivals are taking. Paccar can face stiff competition from Navistar International (NAV), which also released solid results for the third quarter, delivering good operational performance and impressive growth in the top line and the net income. It has also raised its forecast for the class 8 industry. With several cost cutting initiatives, Navistar can improve its profit margins better than Paccar if it doesn’t watch its moves.

Conclusion

Now moving on to the fundamentals, Paccar looks cheap with a trailing P/E of 18.35, while its earnings are also expected to grow steadily with a forward P/E of 15.87. In the long term, the company’s earnings are expected to grow at a CAGR of 13.00% for the next five years, which is close to the industry's average of 13.97%. Further, a booming truck market will be a catalyst for the company in the coming quarters. Considering all the facts and statistics, Paccar is a good pick and investors should consider including it in their portfolio.