On Dec 29, 2014, we issued an updated research report on PACCAR Inc. (PCAR). This Zacks Rank #2 (Buy) stock had reported positive earnings surprises in three of the last four quarters with an average beat of 1.7%.

PACCAR posted third-quarter 2014 earnings of $1.04 per share, marking an increase of 19.5% from 87 cents in the same quarter of 2013. Earnings surpassed the Zacks Consensus Estimate of 96 cents.

Revenues in the reported quarter rose 15% to $4.93 billion, surpassing the Zacks Consensus Estimate of $4.55 billion. The company’s truck deliveries increased 17% year over year in the first nine months of 2014.

PACCAR holds a record of having generated net profit for 75 consecutive years. This enables the company to follow an active capital deployment policy, including paying dividends regularly since 1941. PACCAR is also well positioned in the key non-U.S. markets through its investments in growth strategies.

However, PACCAR is significantly dependent on its suppliers for providing the requisite raw materials. The company’s commercial truck markets face tough competition.

Further, PACCAR is witnessing declining sales in Europe. Industry sales in the above 16-ton truck market in Europe are expected to be in the range of 210,000–220,000 units in 2014, down from 241,000 units in 2013.

Meanwhile, PACCAR expects Class 8 industry retail sales of 245,000–255,000 vehicles in the U.S. and Canada in 2014, up from 212,000 in 2013 and the highest since 2006. Further, Class 8 industry retail sales in the U.S. and Canada are expected to be in the range of 240,000–270,000 vehicles in 2015.

Moreover, PACCAR expects the industry demand for heavy-duty trucks in South America to range between 140,000 and 150,000 units in 2014 and 130,000–160,000 units in 2015. The increase in industry sales should translate into higher sales for the company as well.

Key Picks from the Sector

Investors interested in the auto industry could consider better-ranked stocks like Meritor, Inc. (MTOR), Tower International, Inc. (TOWR) and Dana Holding Corp. (DAN), all sporting a Zacks Rank #1 (Strong Buy).

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