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PCAR Pressured On Two Fronts in Truck Business

By    |   Friday, 10 August 2012 10:40 AM

PACCAR (PCAR) is pressured on two fronts. Its truck business depends on growing demand in a wobbly global recovery, particularly in Europe. Second, any growth that does occur is in the context of a tightly competitive market for over-the-road trucking, in which PCAR is but one provider. As a result, analysts are mixed on the outlook for the truck manufacturer.

PACCAR has two main segments: The design, manufacture and distribution of light-, medium- and heavy-duty trucks and related aftermarket parts and, secondly, finance and leasing products and services provided to customers and dealers.

Light- and medium-duty trucks have a gross vehicle weight (GVW) ranging from 16,000 to 33,000 lbs (Class 5 to 7) in North America and 6 to 5 metric tons in Europe. Heavy-duty trucks have a GVW of over 33,000 lbs (Class 8) in North America and over 15 metric tons in Europe.

The company and its subsidiaries design and manufacture heavy-duty diesel trucks that are marketed under the Kenworth, Peterbilt and DAF nameplates. These trucks are built in three plants in the United States, three in Europe and one each in Australia, Canada and Mexico and are used worldwide for over-the-road and off-highway hauling of freight, petroleum, wood products, construction and other materials.

“The company’s trucks have a reputation for high quality and are essentially custom products, most of which are ordered by dealers according to customer specification,” management said in a recent filing. “Some units are ordered by dealers for stocking to meet the needs of certain customers who require immediate delivery or for customers that require chassis to be fitted with specialized bodies.”

There were four other principal competitors in the United States and Canadian commercial truck market in 2011. PCAR’s share of the U.S. and Canadian Class 8 market was 28.1 percent of retail sales in 2011.

In Europe, there were six other principal competitors in the commercial truck market in 2011, including parent companies to two competitors of the company in the United States. DAF had a 15.5 percent share of the Western and Central European heavy-duty market and an 8.9 percent share of the light/medium market.

PCAR’s finance and leasing activities are principally related to company products and associated equipment. Other manufactured products include industrial winches.

PACCAR has a market cap of $14.56 billion in the machinery sector, where the average company size is $6.63 billion. Its trailing 12-month P/E ratio is 11.93 and its five-year projected price-to-earnings-growth (PEG) ratio is 0.88, compared with 1.27 for the sector.

Its projected earnings-per-share growth for the coming year is 11.01 percent, compared with a sector average of 15.50 percent.

Tough competition

Analysts are mixed on PCAR, with buy or outperform calls from Standard & Poor’s Equity Research and Jefferson Research but an underperform rating from Zacks Investment Research.

“Despite being the third-largest manufacturer of heavy-duty trucks in the world, PACCAR faces tough competition in its principal markets U.S., Canada and Europe,” Zacks Investment Research analysts wrote in late July, setting a target price of $35.

“Further, the company expects industry sales in the above 16-ton truck market in Europe will go down due to the ongoing uncertainty in Eurozone.”

PACCAR next reports on Oct. 23.

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Friday, 10 August 2012 10:40 AM
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