(PCAR) was added to my list of Long Ideas in August 2020. Shares recorded low market performance in 2021, but strong brand awareness, production experience and a large distribution network allow it to enter the industry where changes are expected. As I will show in this report, a stock can cost $ 155 / share.

PACCAR has 74% + upward potential

  • PCAR has underperformed the market by 32% since I turned it into a long-term idea in August 2020, according to Figure 1. Despite its underperformance, I think the stock still presents a favorable risk / reward as PACCAR can increase long-term profits և good. installed to remove old combustion engines.
  • At its current price, PACCAR has a price-to-value ratio (PEBV) of 0.9, which means that the market expects profit to fall steadily by 10%. At the same time, consensus estimates expect PACCAR revenues to improve in 2021, 2022 և 2023.
  • In the scenario where PACCAR manages to achieve a modest margin improvement և meet reasonable expectations of earnings growth, the stock is worth $ 155 / share today.

Figure 1. Execution of a long idea. From the date of publication until 16.11.2021

What works for the company?

Revenue growth continues. Despite delivering fewer trucks in the 21st quarter than a year earlier, PACCAR outperformed consensus estimates, with revenue growth exceeding 4% year-over-year. Like its competitors, PACCAR was battling a global shortage of semiconductors. Supplier restrictions prevented PACCAR from delivering about 7,000 additional units in the third quarter. PACCAR hurts the volume, but more than that it complements the pain in terms of price strength աճ spare parts sales growth.

Demand for trucks is high. The outlook for the freight industry remains very favorable. Rising freight prices բարձր High rates of fleet use in the short term stimulate demand for newly loaded trucks. Long-term demand for new trucks seems strong for an industry that handles 74% of all U.S. freight. Mordor Intelligence expects the heavy truck market to grow by 7% per year from 2021 to 2026.

The new models help customers in the short term. PACAAR’s Peterbilt, Kenworth և DAF brands can meet the growing demand for new trucks as fuel costs rise and drivers continue to drive up freight rates. The latest model of the DAF saves 10% more than the previous model, and the latest models of Peterbilt և Kenworth each have 7% more savings than their predecessors.

Supply Restrictions Encourage Parts Sales. Supply Chain Failure և Difficulties in delivering new trucks mean that operators have to work longer և harder on existing fleets, causing more wear and tear և on an aging fleet. As an additional market maker, PACCAR Spare Parts benefits from this supply / demand imbalance. In the 21st quarter, the revenue of the truck parts sector increased by 24% per year, amounting to 26% of the total revenue of the quarter, compared to 16% in the third quarter.

Profitability is improving. PACCAR net operating profit after tax (NOPAT) margin improved from 7% in 2016 to 9% in 2019 before the epidemic. PACCAR’s TTM NOPAT margin reached 6.5% in the fourth quarter, up from 7.5% since the end of the third quarter. At the same time, TTM’s invested capital has improved from 1.8 to 2.0.

NOPAT Margin Increase բարել Improved Investment Turnover Boosts PACCAR TTM Return on Equity (ROIC) from 12% in the 20th quarter to 15% in the 21st quarter. PACCAR TTM ROIC 15% higher than all but two (Toro Company

[TTC] և Deere & Company:

[DE]From 23 companies covered by heavy vehicles and vehicles.

The change of industry gives an opportunity. With the growth of electric vehicles և automated driving, the freight industry is undergoing major technological changes. PACCAR has been actively positioned to grow in line with these trends. The company already provides seven-battery electric trucks under its Peterbilt, Kenworth և DAF brands. PACCAR has also supplied hydrogen fuel cell trucks to 3Q21 for field tests with Shell, Toyota and UPS. PACCAR recently partnered with the US Department of Energy (DOE) on its SuperTruck 3 program. The project is an initiative of the DOE to develop medium-heavy zero-emission trucks, and PACCAR has received a corresponding grant of $ 33 million for its participation in the project.

Regardless of the type of engine, autonomous driving promises to transform the freight industry in the long run, addressing ongoing labor shortages, և PACCAR is investing in this technology for future benefits. The company cooperates with the autonomous driving company Aurora և FedEx

(FDX) to test the Houston-Dallas Autonomous Freight Route. As autonomous driving technology improves, becomes more widespread, and creates sustainable efficiency, the demand for newer truck models will increase in the long run.

Executives are paid to create shareholder value. PACCAR links executive compensation in the form of long-term cash rewards to a return on equity similar to my ROIC calculation. There is a strong correlation between ROIC improvement ացման shareholder value increase և, so PACCAR’s decision to use the return on equity is positive for investors as it serves the interests of executives with the interests of shareholders.

Which does not work for the company


Is a new market participant.
Whether or not Tesla’s fears of disrupting the freight industry have undoubtedly affected PACCAR’s stock price. Although Tesla has done most of its semester, it does not expect to ship until 2022, which is now three years longer than originally planned. PACCAR, on the other hand, pushes Tesla forward as it already supplies ten EV trucks in the 3Q21. As mentioned above, PACCAR has an industry-leading seven-battery electric truck.

In addition, PACCAR’s deep industrial connections, manufacturing experience, and extensive network of more than 2,200 dealers mean that the company has the scale to meet the growing demand for EV trucks.

The loss of market share reveals short-term problems. The company lost market share in the nine months to 2021. The share of heavy goods 8-class trucks fell from 29.7% in the nine months to 2020 to 29.6% in the nine months to 2021, and the share of medium trucks. During the same period, it decreased from 23.3% to 20.6%.

However, PACCAR shares in the 8th class և middle customs markets are still higher than their level in the first nine months of 2019. Moreover, with almost 10,000 trucks on hand, the company’s market share could increase when it appears. acquires missing components ում Delivers ready-made trucks. The company does not calculate revenue until the buyer owns the car, so these unfinished trucks can generate revenue և profit when the necessary components are available.

Rising material costs can squeeze a margin. Rising material costs և Inflation in the automotive supply chain may slow down the recovery of the company’s NOPAT margin. While PACCAR can reduce the cost of materials in the short term through its new, more expensive machines, the company must prove that it can pass on increased costs to customers in the long run.

PCAR is estimated to keep profit below 35% below 2019 levels

At its current price, PACCAR has a price-to-value ratio (PEBV) of 0.9, which means that the market expects profit to fall steadily by 10%. At the same time, consensus estimates expect PACCAR revenues to improve in 2021, 2022 և 2023.

Below, I use my Reverse Discounted Cash Flow (DCF) model to analyze the future cash flow growth expectations contained in several stock price scenarios for PACCAR.

In the first scenario, I assume PACCAR.

  • NOPAT margin falls to և 7% (equal to 10 year average vs. 8% TTM) in 2021-2030, OP
  • Income increases by only 1%, which is added annually in 2021-2030 (according to CAGR 16% in 2021-2023)

In this scenario, PACCAR NOPAT is growing at 2% per annum over the next decade, այսօր the stock is currently trading at $ 89 / share, which is equal to the current price. Look at the math in this opposite DCF scenario. For information, PACCAR increased NOPAT by 11% year-on-year over the five-year period preceding the 2014-2019 epidemic. In this scenario, PACCAR’s NOPAT is $ 1.5 billion in 2030, or 35% lower than 2019 և 12% below the TTM level.

Shares can reach $ 155 or higher. If I assume PACCAR.

  • NOPAT margin improves up to% 8% (average in 2015-2019 compared to 7.5% TTM) from 2021-2030, և
  • Revenue increases by 16% CAGR by 2023 (equal to CAGR of 2021-2023 consensus), և
  • Revenue is growing at only 3% per year, then every year until 2030

shares are worth $ 155 / share today, 74% higher than the current price. Look at the math in this opposite DCF scenario. In this scenario, PACCAR increases its NOPAT by 9% per annum over the next 10 years compared to 12% CAGR (including COVID-19 decline).

If PACCAR increases earnings and profits to more consistent historical levels, stocks will grow even more.

Figure 2. PACCAR historical և supposed NOPAT. DCF evaluation scenarios

Revelation. David Trainer, Step Guske II և Matt Schuler’s no compensation for writing about a particular stock, segment, style or topic.