Trucking giant PACCAR PCAR is trading cheap at the moment from a valuation perspective. Its forward earnings multiple of 1.68 is lower than the industry’s 2.95 as well as its own one-year average of 1.72. PCAR has a Value Score of B.
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Shares of the company have declined 2% over the past year, underperforming the industry, sector and S&P 500. Its close competitor Volvo VLVLY rose around 18% over the same timeframe.
One-Year Price Performance Comparison
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In 2024, PACCAR logged $33.6 billion in revenues, down 4.2% year over year. The company’s truck deliveries were down 9.3% to 185,300 units. Adjusted net income declined 17.5% last year. Having said that, 2024 was still the second-best year in the company’s history in terms of financial results. While trucking revenues took a hit, sales of PCAR parts achieved a record and helped offset softer truck sales.
The company has a lot going in its favor. Its reputed brands namely Kenworth, Peterbilt and DAF, accelerated efforts to develop electric and autonomous trucks, growth in aftermarket parts and a broad dealer network are major tailwinds. But challenges like high R&D expenses and capex persist. Additionally, a muted outlook for the European trucking market as well as broader economic uncertainty could weigh on this highly cyclic industry.
With the stock trading at a discount now, let’s delve into PCAR’s growth drivers and challenges to see if it’s worth buying at current levels.
3 Reasons to Like PCAR
Strong Aftermarket Growth: While PACCAR derives most of its revenues from truck sales, its growing aftermarket parts business offers stability and high margins. The increasing adoption of its proprietary MX engine is driving demand for PACCAR Parts, benefiting from high truck utilization and an aging fleet. An expanding distribution network, dealer locations, TRP stores, and advanced e-commerce systems further support growth. The company expects parts sales to rise 2-4% in 2025.
Robust Financials and Shareholder Returns: PACCAR boasts a strong balance sheet with A+/A1 credit ratings from S&P and Moody’s, respectively. Its total debt-to-capital ratio of 0.45 is well below the industry average of 0.62, enhancing financial flexibility. PACCAR’s historical cash flow growth (3-5 yrs) is around 8% compared with industry’s 5.7%. The company’s long-standing commitment to shareholder returns is another positive. PACCAR has paid dividends every year since 1941 and increased payouts 11 times in the past five years, with an annualized growth rate of 8.15%.
Advancement in Alternative Power Solutions: PACCAR is investing in advanced technologies to drive long-term growth. Its hydrogen fuel-cell Kenworth T680E and battery-powered Peterbilt 579 highlight its push toward emissions-free trucks. Collaborations with Aurora and Toyota for autonomous and hydrogen fuel-cell trucks, as well as a battery cell joint venture with Daimler, Eve Energy, and Cummins, strengthen its competitive edge.
Concerns for PCAR
While the North American truck market is expected to remain stable in 2025, Europe is a different story. PACCAR expects European registrations for trucks of over 16 tonnes to drop to 270,000-300,000 in 2025 from 316,000 in 2024. The expected decline in European sales could weigh on PACCAR’s truck deliveries and revenue. South America’s above 16-tonne market is also likely to be stagnant at 119,000 vehicles.
Discouragingly, PACCAR expects to deliver around 40,000 trucks in the first quarter of 2025, down from 43,900 in fourth-quarter 2024 and 48,100 in first-quarter 2024. Lower sales could impact revenues. Margins are also likely to be under pressure. First-quarter truck, parts, and other gross margins are forecast at 15.5-16%, a drop from 19% in the first quarter of 2024.
PACCAR’s push for innovation comes with a hefty price tag. It plans to spend $460-$500 million in R&D in 2025, up from 2024 levels. Additionally, it will spend $600-$900 million on its battery joint venture, Amplify Cell Technologies. While these investments support future growth, they could strain near-term financials and cash flow.
What Do Estimates for PCAR Say?
The Zacks Consensus Estimate for PCAR’s 2025 sales implies a modest growth of 0.5%, while that of EPS implies a year-over-year decline of 3.8%.
The consensus mark for EPS is witnessing downward estimate revisions.
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Of the 15 analysts covering PCAR, six have rated it a “Strong Buy,” eight rate it as “Hold,” and one a “Strong Sell.” The stock currently has an average brokerage recommendation (ABR) of 2.33 on a scale of 1 to 5.
Bottom Line
PACCAR’s discounted valuation and strong aftermarket parts growth make it an intriguing pick, even though near-term risks prevail. The bleak outlook for the first quarter of 2025 especially raises concerns.
The company’s commitment to innovation in electric and autonomous trucks positions it well for the future, yet European market softness and rising R&D costs could put pressure on margins. While its solid financials and shareholder returns provide stability, growth expectations remain modest.
For long-term investors, PACCAR offers value, but patience may be required as short-term headwinds play out. Given the industry’s cyclical nature, waiting for clearer signs of recovery could be a prudent approach before buying the stock. Existing shareholders should retain the stock and wait for a better exit point.
PACCAR currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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