Wednesday, July 05, 2006

Reader Email: Paccar Trucks

You Ask You wrote favorably about Paccar (PCAR) on -- talk to me some more about the stock.

We Reply PACCAR makes medium-duty (class 6-7) and heavy-duty (class 8) trucks under the Peterbilt and Kenworth names in the US and the DAF and Foden names in Western Europe. Its class 8 market share is around 23% in the U.S. and 14% in Europe. It also has a financial segment that provides services such as financing arrangements and full-service leasing to dealers/customers.

We view PCAR as a diamond ring hiding in a landfill of garbage. It's a pure play on the truck manufacturing segment that goes for less than 12 x EPS, attractive when you look at how the firm has grown EPS 45% over the last 3 yrs [on an annualized basis]. Analysts are cheerleading for the stock (2 buy, 3 hold, 0 sell) and we take awe at gross margins (21%) that are almost 5 x what the industry pumps out; operating margins of 12% rip the cover off the ball and attest to the firm's efficient cost structure, which some have even compared to Dell's (DELL). Overall, this is a mispriced, quality name with a mean penchant for productivity-enhancing R&D. We see the stock shooting higher but would warn the less risk-tolerant that tighter emission controls in 2008-2010 could weigh negatively on shares. With $2B in cash, negligible debt, and a FCF yield (free cash flow/revenues) of about 5%, Paccar is a stock you want to pounce on now -- it will even pay you a buck twenty a share so that you don't cry or hit the road during downcycles. Our long term price target is $94, a 13% premium to Monday's closing price.

Got a question for us? We spend our days and nights drinking Red Bull, poring over 10Ks, and studying the stock market. Hit us with your best shot at Don't forget that you can also catch our recognized work at, a must read according to the New York Times and Barrons.

About Us | In the News | Management | Contact Us | Archive | Premium Membership | Terms of Use | Privacy Policy | Careers | FAQ

All quotes are 15 minutes delayed. Copyright © 2006 by Catablast! Media Group LLC, part of the SeekingAlpha network. Web Design by Synexio Systems. All Rights Reserved.