Oshkosh Corporation (OSK, Financial) is a leading designer, manufacturer and marketer of a broad range of access equipment, commercial, fire and emergency, military and specialty vehicles and vehicle bodies. The stock is worth holding for the next five years due to the company’s recent contracts from the U.S. defense sector.
Oshkosh Corporation has remained sideways since July 2015 and I see this consolidation range as an excellent buying opportunity. While the stock has remained sideways, the company’s revenue and earnings visibility has improved significantly during this period.
The game changing point for Oshkosh from a fundamental perspective was on Aug. 25, 2015 when the company announced that it has been awarded a $6.7 billion firm fixed price production contract to manufacture the Joint Light Tactical Vehicle. This provided Oshkosh with multi-year revenue visibility, but the company faced another challenge related to legal hurdle for the production contract.
On Feb. 18, Oshkosh announced that its competitor withdrew its protest from the U.S. Court of Federal Claims and this allows Oshkosh to continue work under the $6.7 billion JLTV contract. I believe that is the key upside trigger for the contract that was won in August 2015, and it’s worth noting that the stock has surged by 15% since the legal clearance. The stock upside will continue as the contract now provides firm cash flow visibility.
On March 23, Oshkosh announced another contract worth $243 million for the Joint Light Tactical Vehicle program including 657 vehicles, 2,977 installed kits and related support. With the JLTV program remaining a top priority for the Department of Defense, I see more orders in the foreseeable future and this will keep the stock momentum positive.
Further on March 24, Oshkosh announced that the company will recapitalize 1,212 Family of Heavy Tactical Vehicles and produce 345 trailers following multiple orders from the U.S. Army valued at more than $430 million.
First, the order flow for Oshkosh Corporation has been robust and I expect this to sustain with JLTV program remaining a high priority for the Department of Defense.
Second, in the last six months, the order backlog for Oshkosh Corporation has increased significantly with the stock remaining sideways during the same period. This provides an excellent long-term investment opportunity.
Third, with the impact of these orders likely from 2016, I expect revenue and earnings bump-up to come in the next 24 to 36 months and this will take the stock higher.
With these factors in consideration, Oshkosh is certainly worth considering and even as the U.S. corporate sector is in earnings recession, I expect the company’s earnings to outperform in the coming years.
Oshkosh currently has dividend payout of 76 cents per share and I expect the dividends to increase consistently in the next few years. This is yet another reason to expect stock re-rating and remain bullish with a five-year horizon.
Disclosure: No positions in the stock.
