About Paccar
Paccar should really be called Pactruck, if we are being brutally honest.
But that’s just us being picky, I suppose, you know, given the fact that Paccar is a premium truck manufacturer that you might not think you’ve seen or been around but if you’ve ever driven on the interstate or highway, trust us when we say you know this company more than you think you do.
Specifically, Bellevue, Washington-headquartered Paccar is a designer, manufacturer and seller of larger trucks (think trailers and 18-wheelers) under a few different brands that are mighty popular within the trucking and transport communities and sectors such as Kenworth, Peterbilt along with DAF, which are among some of the largest, most prominent brands of trucks that lug and tug goods across the country essentially each and every minute of the day.
One thing that struck us in drafting this stock analysis article was considering the fact that the national and global supply chains have been stretched time after time over the last few years, naturally implying that the company’s products (its trucks) have been in high demand, as more and more companies have needed to ensure they had (and currently still have) the logistical capabilities to fulfill the orders it has and/or is tasked with shipping, or the wherewithal to simply get its products to its stores so customers are able to purchase them in the first place.
Whether it was a trucking company that specializes solely in transporting goods and products from one area of the country to another (Paccar sells many of its trucks and other equipment in the United States), such as a trucking company like Landstar, Old Dominion Freight Line or J.B. Hunt or perhaps a retailer or consumer discretionary company that sells and transports its own goods through a private trucking fleet of its own such as Walmart, Dollar General and Domino’s, more likely than not these companies (among many, many others) needed to do everything in their power to ensure they could fulfill their customers’ needs.
This was an absolute tailwind for a company like Paccar.
Even though supply chain stress has largely subsided (at least in comparison to how strained it was in the early 2020s), this company is still likely to see steady demand moving forward, especially given the exponential and continual rise of e-commerce, even though we don’t view this company as being a “growth” company, as it maintains a more than established presence and is likely to experience much of its future growth through some internal projects and initiatives but more than likely through acquisitions here and there, as is commonly a large part of the playbook for a company with the sheer size and scale this one already maintains.
It’s also worth considering the fact that being an established, tried-and-true industry titan and leader has its perks, including (but not limited to) offering its shareholders annual dividends, the ability to be somewhat immune to greater overall market fluctuations and a quality of particular importance for a company such as Paccar, leverage with its suppliers, sort of like how another established company such as, say, a Walmart, more than likely has substantial control and say over the prices its suppliers can charge for the merchandise they sell within its stores.
Said suppliers are more than likely going to acquiesce to Walmart’s demands, because, heck, they have arguably the largest physical retail presence in the world.
Paccar is one of the world’s largest truck manufacturers; you know the rest.
Of course, there are a few downsides to being an especially large company, some of which have already been hinted at in previous paragraphs (i.e., slow growth).
At any rate, now seems like a fantastic time to gain some familiarity with Paccar and its core financials in hopes of determining whether or not this company’s stock (NASDAQ: PCAR) is worth considering as a long-term investment.
Paccar’s stock financials
With a current share price of $85.74, a market capitalization of $44.83 billion as well as prevailing price-to-earnings (P/E) ratio of 17.89 and an annually distributed dividend of $1.08 to its shareholders at the moment, shares of Paccar’s stock (NASDAQ: PCAR) seem to not only be reasonably priced, but technically trading at a discount given that its P/E ratio is a few points lower than that of the commonly held, fair value price-to-earnings ratio benchmark of 20 and with Paccar’s standing a bit below, this indicates that this company’s stock is presently undervalued.
We also like the fact that the company pays out an annual dividend to its shareholder crowd, so long as it can afford to dish it out, that is.
Moving right over to the company’s balance sheet, Paccar’s executive team is tasked with taking care of and properly tending to approximately $33.2 billion in terms of total assets as well as around $20.1 billion in terms of total liabilities, which, with all of the moving parts (no, literally) and expenses and associated costs floating around within Paccar’s business, we deem this to be a very healthy balance sheet, as its total assets are resoundingly greater than the total amount of its liabilities even after all of the recent supply chain turmoil, stress and strain inflicted on this company and others a few years back.
If Paccar’s balance sheet was ever considered unhealthy, it certainly is healthy from our vantage point today.
With respect to the company’s income statement, Paccar’s total annual revenues since 2018 have seen some mild fluctuation but have also not drifted all too much over the years, as between 2018 and 2022 this company’s total year-over-year (YOY) revenue has remained in the neighborhood of $18.8 billion (2020) and $28.8 billion (2022) and given that we all know what was going on in 2020, we are content, especially since the company’s revenues rebounded following the initial shock of COVID-19.
Onto the state of the company’s cash flow statement, Paccar’s ability to turn over both consistent and positive net income and total cash from operations thankfully has not been an issue, as we candidly expected from this company, however, a little confirmation never hurts.
As a sort of reference, the company’s net income (also between 2018 and 2022) generally ranged between $1 billion and $3 billion while its total cash from operations during the same time frame generally found itself at around $2 billion each year.
Positive, consistent and boring.
We like it.
Paccar’s stock fundamentals
While we initially assumed that Paccar had some pricing power, we just don’t have a single clue as to whether the margins in the truck and truck equipment manufacturing space(s) actually are, however, let’s reference the figures displayed on TD Ameritrade’s platform to get a better idea.
Specifically, TD Ameritrade lists Paccar’s trailing twelve month (TTM) net profit margin as being 11.2% and the industry’s respective average as being a measly -0.19%.
This is yet again another one of those metrics and/or figures that even though we didn’t know what exact number to expect out of Paccar, we had confidence that it would be greater than that of the industry, on average.
It’s a good thing Paccar continues validating our original initial assumptions and expectations.
Additionally, Paccar’s TTM returns on assets and investment(s) in relation to its peers (on average) have outdone themselves once again, as, for instance, TD Ameritrade’s platform also lists the company’s TTM return on investment as 13.05% to the industry’s listed respective average of 7.63%, which, to us, is just yet another metric that solidifies that this company is on top of the truck manufacturing sector for a reason.
Should you buy Paccar stock?
Paccar operates in an overall stable industry with itself operating a seemingly predictable business.
While there is hardly any doubt that the aforementioned facts and figures provide an excellent base through which this company can continue executing and operating on moving forward, we surely wouldn’t be quick to underestimate the additional underlying supply chain-related tailwinds that we think will become increasingly more apparent in the years to come.
As more and more companies put their hats into the e-commerce ring, there will be more overall demand for trucks, trains and planes and their associated logistics companies and operators to fulfill the continued rise in demand as it relates to products and goods of all sorts, shapes and sizes.
With its shares trading at a relative discount, its balance sheet and margins in stellar condition, there isn’t a lot to initially dislike about Paccar. While this company (like every other company) isn’t fully recession proof or even unionization proof (i.e., if truckers across the nation opt to strike this can certainly have a negative impact on Paccar and the industry as a whole), we think the pros outweigh the cons in handsome fashion with this company and that is exactly why we have no problem giving its stock (NASDAQ: PCAR) a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.