Paccar (PCAR, Financial) ended fiscal 2014 with an excellent performance in the recently reported fourth quarter. The company performed well due to positive contribution from all its segments. There are several favourable aspects for Paccar, including the anticipated boom in the heavy truck market. Let us have a look at its prospects in detail.
Doing well on the back of strong products
Paccar has been consistently performing well on the exchange as well. The company has also succeeded in adding good value to its shareholder’s wealth in the past. It has declared dividend of $1.86 per share, which is a solid 9% increase as compared to 2013. This trend is expected to continue in future as well, strengthening its market position among its peers. Paccar has a strong product portfolio which is seeing good progress.
It is expecting its product to achieve better recognition in the market with the positively growing North American heavy truck market. In addition, Kenworth’s new vocational truck T880 truck which is equipped with Paccar’s MX-13 engine is awarded as “2015 Truck of the Year” by American Truck dealers which will definitely add more colour to Paccar’s image in the market leading to better sales.
The way ahead
For 2015, Paccar is expecting growth in the sales of its trucks. The recovering U.S market is a positive catalysts in this. The company is expecting the vehicle deliveries to ramp up 15% to 18% in the new fiscal year indicating an impressive growth in sales overtime. With this growing sales, Paccar is expecting its margins to be 1% to 1.5% better than same quarter last year. In addition, with growth in the truck market in the U.S, Paccar is also pleased to see an impressive comeback by Canadian truck market.
In Canada, Paccar is seeing good opportunities with the growing demand for replacement and need for fleet expansion. With such bright opportunities beforehand, Paccar is expecting retail sales of Canadian Class 8 trucks to range in between 250,000 and 280,000, which is a solid growth.
If we closely look at the overall industry, there are positive growth prospects. Since the U.S economy is recovering, the interest rates are expected to come down which will bring a boom in the automotive segment with rise in demand for commercial vehicles as well. In addition, the heavy duty truck market is not just controlled by Europe and U.S now. There are many other important players such as Japan and Korea who have entered this market. The entry of these automakers indicates that heavy duty truck market has definitely got much room for future growth. Moreover, the lower steel prices are also expected to ramp up the demand of commercial vehicles including heavy duty truck market.
Conclusion
The stock look reasonable with a trailing P/E of 16.65 while the forward P/E of 13.77 shows good growth in earnings in the near term. An impressive profit margin of 7.15% is also expected to attract investors, helping it to gain further market share. All these valuation levels look favourable for Paccar and considering the future growth in the heavy duty vehicle market, Paccar is definitely a stock you should pick.
