Paccar has plenty of growth drivers

Recent Price $108
Dividend $4.28
Yield 4.0%
P/E Ratio 11
Shares (millions) 525.5
Long-Term Debt as % of Capital 23%
52-Week Price Range $125.50 - $68.40

 

Paccar ($108; PCAR), known for its high-end truck brands (Peterbilt, Kenworth, and DAF), grew sales 22% and per-share profits 67% over the last year. While we don’t expect such growth to continue, we do expect Paccar’s brand power and technological advantages will help it ride out the slowdown.

Paccar, which also sells aftermarket parts and engines (19% of 2023 revenue, 31% of operating profit) trades at 12 times trailing earnings, 18% below the industry median and 10% below its three-year norm. The stock is a Buy.

Reasons for optimism

Analysts expect the truck maker to post declines of 5% in revenue and 16% in per-share profits this year, then return to modest growth (5% to 10% for both metrics) in each of the next two years. While the growth numbers don’t stand out on their own, we see a couple of encouraging signs on this front.

First, Wall Street has a history of underestimating Paccar’s performance. The company has exceeded consensus sales and profit targets in each of the last eight quarters, averaging revenue surprises of nearly 9% and profit surprises of 15%.

Second, Paccar has a history of consistency that belies the cyclicality of its end market. Both sales and profits rose in six of the last seven years, with sales up at least 15% five times and earnings up at least 10% in all six positive years.

In the wake of strong deliveries in 2023, likely the peak of a post-Covid truck-replacement cycle, analysts expect shipments to decline in 2024. However, current profit projections seem fairly conservative.

Upshifting

We see growth prospects gearing up starting in 2025, given the likely need for further fleet upgrades heading into 2027, when federal emissions standards will tighten. Looking further ahead, Paccar stands to benefit from several long-term trends.

The company has invested heavily in electric, heavy-duty trucks, spending that should pay off as the Western world continues its shift away from fossil fuels. E-commerce has also been a boon for truck demand. In 2023, e-commerce accounted for roughly 15% of retail sales in the U.S. That percentage should continue to rise.

In addition, several key foreign markets, including Brazil, China, India, and Australia, are upping their emission standards. Because of Paccar’s high-end market position and reputation for fuel-efficiency, the company stands to capture a generous share of that new business over time.

Paying out

Paccar pays a quarterly dividend of $0.27 per share but has historically declared an extra dividend in December substantially larger than the quarterly payment. The stock’s indicated year-ahead yield of 3.7% reflects that extra dividend in addition to the quarterly payments.

Paccar Inc., 777 106th Ave. N.E., Bellevue, WA, (425) 468-7400, www. paccar.com.

 

 

Quarter Per-Share Earnings* Sales Change Quarterly Price Range P/E Ratio
Range
Dec '23 $2.70 vs. 1.76 11% $98.47 - $80.94 11 - 9
Sep '23 2.34 vs. 1.47 23% 90.05 - 80.91 12 - 10
Jun '23 2.33 vs. 1.38 24% 85.18 - 67.48 12 - 10
Mar '23 2.25 vs. 1.15 32% 76.72 - 64.64 13 - 11

 

Year
(Dec.)
Sales
(Bil.)
Per-Share Earnings* Per-Share
Dividend
52-Week Price Range P/E Ratio
Range
2023 $33.3 $9.61 $3.84 $98.47   $64.64 10 - 7
2022 27.3 5.75 2.89 71.45 - 51.33 12 - 9
2021 21.8 3.55 2.04 68.79 - 51.97 19 - 15
2020 17.2 2.49 3.58 63.88 - 32.74 26 - 13

 

Quadrix Scores
Overall Momen-
tum
Value Quality Financial
Strength
Earnings
Estimates
Perform-
ance
Reversion
84 88 59 86 62 76 36 10

 

* Earnings exclude special items.
NA Not Available.
Quadrix® scores are percentile ranks, with 100 the best.
e Dividend and yield estimated.