PCAR: Key Part of Our Thesis Playing Out As NAV Loses Class 8 Share

Takeaway: $NAV has lost significant market share in 2012. $PCAR is well positioned to pick up share in its largest market

 PCAR: Key Part of Our Thesis Playing Out As NAV Loses Class 8 Share


  • Navistar Share Loss:  In our August Truck OEM Black Book, we suggested that Navistar was likely to lose significant market share following product quality and strategy challenges.  The share loss has been significant and continued last quarter.
  • Unclear Call Comments: Navistar management said “And while we have lost some share during the course of the year, overall our market share has been relatively consistent for the last two quarters and our position in each segment has not changed.” (Troy Clarke)  At least in the Class 8 market, this appears to be an optimistic reading, in our view.
  • PCAR Should Gain:  We expect PCAR to pick up a significant portion of Navistar’s lost market share.  The share gains represent a tremendous opportunity for PCAR in the Class 8 space.

PCAR: Key Part of Our Thesis Playing Out As NAV Loses Class 8 Share - nav


  • PCAR Best Way To Play NAV Woes:  Shorting Navistar is a risky trade, in our view, because of a potential buyout by Hino, VW, or other interested party.  
  • Full 2013 Benefit: Next year, PCAR should get a full year benefit of a higher market share, in our view.  We note that Mack struggled to regain any of its lost market share in the 1990s.  
  • PCAR Top Idea: Paccar is one of our top long ideas because of share gains, reduced pre-buy cyclicality and higher construction activity.  Please see our Truck OEM Black Book for additional information.





Jay Van Sciver, CFA

Managing Director

120 Wooster St.

New York, NY 10012


FDX: Inflection in Express Margins Visible

Takeaway: FDX Express may have passed the trough in margins, with improvements likely in FY 4Q/FY 2014. FedEx Ground & Freight performed well.


FDX:  Inflection in Express Margins Visible


  • Inflection in Express Margins:  Given the cost reductions that are already underway, such as a ~2% drop in FTE head count, FedEx Express is probably past the trough in margins on an adjusted basis.  While there is some uncertainty around FY 3Q Express margins, Alan Graf commented that “you'll see it in Q4” on the conference call. 

FDX:  Inflection in Express Margins Visible - fdx marg


  • Express Margin Matters:  FedEx’s competitors have operating margins that are roughly 5-7 points higher than FDX’s, by our estimates.  Structurally, FedEx Express should be able meet or exceed the competition, in our view.  The FedEx Express division has ~26 billion in revenue, giving margin expansion significant bottom line leverage.  While a multi-year project, the potential upside is significant.
  • Ground Gains Ground:  The margin at ground declined, partly due to Sandy, fuel surcharge lag, and capacity additions ahead of a very strong peak volume season.  Those should be temporary factors and underlying volume gains looked healthy.  We expect FedEx Ground to be a growth driver for FDX as the division wins share from UPS and benefits from growth in e-commerce. 
  • FedEx Freight:  We were surprised by the profit growth at FedEx Freight.  We have generally dismissed the potential of this business because of the challenging competitive dynamics in that market.  The results in 2Q suggest that the Freight division may be a more relevant factor than we had previously assumed.
  • Just Getting Started:  FedEx remains one of our top long ideas.  As FedEx Express implements its cost reduction plans and FedEx Ground continues to win share in a growing market, we see meaningful upside potential over the next year or two.  Our base case fair value range for the shares is $120-$150.  For additional information, please see our November 8th Express & Courier Services Black Book.



Jay Van Sciver, CFA

Managing Director

120 Wooster St.

New York, NY 10012



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Rise Up: Athletic Footwear

With recent volatility in the athletic footwear retail names, this week’s athletic footwear sales came in better on the margin despite a third straight week of consecutive industry sales declines. Importantly, performance categories where Foot Locker (FL) and Finish Line (FINL) are over-indexed were up +7.4% on the week compared to the broader industry down -3.7% reflecting a sharp rebound from last week and a return to a HSD growth trajectory. Nike, Jordan and Under Armour all gained share this week. We remain positive on NKE and FL and cautious on UA near-term.


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Housing: Living The Dream

Housing data over the past several weeks has been very strong, indicating a recovery in the sector that’s long overdue. However, recent housing starts data is relatively weak when compared with last month’s numbers. Overall housing starts for November fell 3.0% to 861k from an downwardly revised 888k in October. October was revised down by 6k from 894k; total housing starts are up 25.7% year-over-year.


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The Bigger Picture

Client Talking Points

Retail Kings

JCPenney (JCP) is a retail giant that accounts for 8-9% of total US apparel retail. They’re a huge player that has had one heck of a ride during 2012. CEO Ron Johnson has become a focal point for many investors as they scrutinize what he’s done with the company turnaround thus far, but there’s more to the story. JCP has hemorrhaged market share and in turn, companies like Macy’s (M), Kohl’s (KSS) and Gap (GPS) have picked up business from JCP defectors. While they put up solid growth, JCP is taking a beating. CEOs at these companies won’t admit that JCP is helping them grow their sales and business. 

Take It To The House

The housing market has really exceeded expectations in terms of growth and recovery over the past three months. Existing inventory continues to drop, home prices are rising and some areas that were hit the hardest back in 2007-2008 are on the road to repair; Mortgages are also rising along with refis thanks to low rates. With today's housing starts number falling less than expected, it's clear that housing is a sector that is on the mend and has the potential for plenty of upside. 

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Our competitors are neutral to bearish on the name ahead of earnings, but we think they’re missing the bigger picture. We think concerns over the shoe cycle rolling over are overdone. With R&D in the mid-teens, NKE has the ability to drive the ‘sneaker cycle’ in a case of “the tail wagging the dog”. We also think $NKE is a candidate for releasing a special dividend when they report EPS next week.


Uncertainty in US from a macro perspective (jobless claims uptick) gives us pause from TRADE perspective although coffee prices will serve as a tailwind going forward. Company is becoming more complex, taking on risk as it acquires new brands. Longer-term, we view Starbucks, along with YUM, as one of the most attractive global growth stories in our space.


Margins are in a cycle trough as the USPS is on the brink. FDX is taking more share in the U.S. and following the recent $TNT news flow we think $UPS is in a tough spot.

Three for the Road


"Market Up, $AAPL down, just another day" -@Keeneonmarket


"Democracy is the theory that the common people know what they want and deserve to get it good and hard." -H.L. Mencken


US Housing Starts Fell 3% in November to 861,000. Building Permits rise 3.6% in November.

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.45%
  • SHORT SIGNALS 78.38%