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Can Paccar Keep Rolling?

Posted: May 27, 2008 09:16 AM by Gregory S. Davis

Tickers in this Article: PCAR, OSK, SPAR, ETN

Big rigs dominate the highways of the world, and for over 100 years Paccar (Nasdaq:PCAR) has dominated the heavy-duty trucking industry with rigs that haul everything from textiles to natural gas. Paccar is proving that it can sustain downturns in the domestic economy with support from overseas revenue. The company also recently authorized a stock buyback and a 3-for-2 stock split .

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Green Trucking?
Paccar manufactures big rigs under the Kenworth, Peterbilt and DAF brands. Paccar's Peterbilt brand was the first manufacturer to deliver engines up to emission standards set for 2007 by the Environmental Protection Agency. The company then went one step further by introducing hybrid medium-duty trucks. Medium duty trucks include trucks you may see driven by emergency responders. The hybrid medium-duty trucks use a hybrid power system provided by Eaton Corp. (NYSE:ETN) that offers electric motor assist and regenerative breaking. (Every company is cashing in; to learn why, read For Companies, Green Is The New Black.)

The EPA imposed new emissions standards on truck engines sold in 2007. Sales jumped to record levels in 2006 as customers scrambled to avoid having to meet the new requirements for Class 8 trucks, one of the pillars of the long haul industry. The reaction to the EPA emission standards and the sluggish U.S. economy led to a 45% decrease for heavy weight vehicles in the U.S. and Canada in 2007. Despite a tough year Paccar achieved its second highest net income of $1.23 billion on $15.2 billion in revenue in 2007.

Tough First Quarter for 2008
The downward trend in truck sales pushed Paccar's net income down 25% to $292 million for the first quarter of 2008. Top line revenue remained strong at $3.94 billion during the same time period versus a reported $3.98 billion one year ago on the strength of its overseas sales.

Paccar generates more than 60% of its revenue from outside of the U.S. primarily from Mexico and Europe. Paccar currently has operations established in growing markets like Australia and China. Just last year Paccar opened a sales and purchasing office in Shanghai, China. Next on the agenda for Paccar will be the opening of a sales office in India later this year. (For more on international trends, see Taking Global Macro Trends To The Bank.)

Consider the Competition
While researching Paccar investors should also consider Oshkosh Corporation (NYSE:OSK). Oshkosh supplies several types of emergency, fire and rescue vehicles along with tactical trucks used by the Department of Defense. Smaller market players include Spartan Motors (Nasdaq:SPAR) and Accuride (NYSE:ACW).

Final Valuation
Paccar has several financial qualities that value investors should look for in an investment. It's a large-cap play with an $18 billion market capitalization. Paccar also has a relatively low price to earnings (PE) of 16 and a forward PE ratio of 12. The lower forward PE ratio indicates that earnings are expected to rise in the future. (To learn more, read P/E Ratio: What Is It?)

When the journey is uncertain make sure that the investments you choose have traction. Paccar is an American brand name that carries weight at home and abroad. In defiance of a sluggish economy Paccar continues to prove its ability to ride safely through all seasons.

By Gregory S. Davis

Gregory S. Davis is the owner of G. Davis Capital, a Registered Investment Advisor with the state of North Carolina dedicated to providing independent investment research and education. His core methodology for choosing investments includes going against emotion eliciting headlines while focusing on asset diversification. G. Davis Capital also publishes the ETF education website, ETFReady.com . Gregory is a graduate of the Wharton School of Business and he has received an MBA from Bowie State University.

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