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Takeaway: $PCAR executing well and is taking market share in a cyclically depressed industry. Build schedules and Construction markets stabilizing.

PCAR: Solid Quarter for Our Best Industrials Long Idea

  • Market Share Gains:  Navistar is likely to continue to struggle with customer perceptions of its EGR engine, and possibly its financial stability.  NAV may also have difficulty meeting its target date for introducing the 15L ISX engine for Cummins.  In addition to its own solid product line-up, PCAR should benefit from Navistar’s share loss.
  • Aftermarket Parts:  To a certain extent, the truck industry relies on a razor/razor-blade model.  The continued aging of the truck fleet in PCAR’s key markets – which is driven by weak industry sales - should continue to support margins.
  • Construction Exposure:  Paccar management noted increased interest from construction groups in getting additional vehicles.  A good portion of the US Class 8 truck fleet is directly or indirectly tied to construction activity, potentially supporting new truck and aftermarket demand.
  • Cyclically Depressed with Upside:  Share gains, a record old Class 8 Fleet, improving construction activity and an effective, long-term focused management leave PCAR as a top long idea.  We see valuation upside to the mid-50s.  Please see our August 16 Truck OEM Black Book for additional information on the industry and PCAR.

Jay Van Sciver, CFA

Managing Director

120 Wooster St.

New York, NY 10012