On Wednesday, Citi updated its financial model for PACCAR Inc (NASDAQ:PCAR), leading to a slight increase in the price target for the company's shares. The new price target is set at $110.00, up from the previous $108.00, while the Neutral rating on the stock remains unchanged.
The revision follows PACCAR's third-quarter results, which prompted the analyst to adjust the fourth-quarter earnings per share (EPS) estimate to $1.65 from $1.72, citing lower gross margins. Looking forward to 2025 and 2026, the analyst has increased the EPS estimates to $7.75 and $9.35, respectively, up from $7.65 and $9.20. This change is primarily attributed to improved forecasts for the U.S. and Canadian markets.
Both PACCAR and its competitor Volvo (OTC:VLVLY) presented Class 8 retail outlooks for 2025 that surpassed expectations. PACCAR also reported healthy inventory levels, which led to an upward revision of the 2025 U.S. and Canada Class 8 builds outlook to approximately 260,000 units, an increase from the prior estimate of around 250,000 units.
However, the analyst has lowered the 2025 gross and operating margin estimates by approximately 30 basis points due to anticipated challenges in price and cost balances, as well as increased research and development expenses.
Despite the raised EPS forecasts and price target, Citi maintains a cautious stance on PACCAR, particularly noting risks related to the company's price and cost over the next year and the back-half-weighted guidance for 2025.
In other recent news, PACCAR Inc. has made headlines with its strong second-quarter financial results, reporting revenues of $8.8 billion and a net income of $1.12 billion. The company's Parts division also saw a revenue increase to $1.7 billion, boasting a high gross margin of 30.3%. Despite a softer truck market in Europe, PACCAR's DAF trucks maintained a strong performance. The company is also making strategic investments in electric vehicle technology through a joint venture.
In terms of analyst updates, both Citi and BofA Securities have recently adjusted their price targets for PACCAR to $108 and $107 respectively, while maintaining neutral ratings. Truist Securities also reduced its price target for PACCAR to $107, maintaining a hold rating. These adjustments come in light of PACCAR's Q2 performance, which showed an 8% year-over-year decline in adjusted EPS to $2.13 and an 80 basis point drop in gross margin to 18%.
Looking ahead, PACCAR anticipates a fall in gross margins to 17% in the third quarter, with truck deliveries estimated to be between 43K and 44K units. These recent developments indicate a potential downturn in truck production for the company. Additionally, PACCAR Inc. continues its practice of returning value to its shareholders, announcing a regular quarterly cash dividend of thirty cents ($0.30) per share. These are the recent developments for PACCAR.
InvestingPro Insights
PACCAR's financial metrics and market position offer additional context to Citi's analysis. The company's P/E ratio of 12.26 and adjusted P/E ratio of 11.67 for the last twelve months as of Q3 2024 suggest that the stock is trading at a relatively low valuation compared to its earnings. This aligns with an InvestingPro Tip indicating that PACCAR is trading at a low P/E ratio relative to its near-term earnings growth.
The company's dividend yield of 4.2% and a notable dividend growth of 49.32% in the last twelve months highlight PACCAR's commitment to shareholder returns. An InvestingPro Tip reveals that PACCAR has maintained dividend payments for 54 consecutive years, demonstrating long-term financial stability.
While Citi expresses caution about future margins, PACCAR's current financials show strength. The company boasts an operating income margin of 15.79% and a return on assets of 11.58% for the last twelve months as of Q3 2024, indicating efficient operations and asset utilization.
For investors seeking more comprehensive analysis, InvestingPro offers 13 additional tips for PACCAR, providing a deeper understanding of the company's financial health and market position.
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