[Updated 04/08/2021] Paccar Update
Having grown 60% since the end of 2018, Paccar stock (NASDAQ: PCAR) has reached its short-term potential. Paccar, one of the largest manufacturers of medium and heavy trucks, saw its stock grow 61%, from $ 57 in late 2018 to close to $ 92 now, compared to the S&P 500, which has also gained 62% since the end of 2018. The company saw revenue and profits increase in the past few years before the Covid-19 pandemic, while its multiple P / E also increased. Our panel ’Buy or sell Paccar stock’ has the underlying numbers.
Due to the Covid-19 crisis, PCAR saw its revenue drop 27% in 2020 to $ 18.7 billion, as business focused only on basic operating expenses. The company recorded a decline in earnings to $ 3.74 per share compared to $ 6.88 the previous year due to the pandemic. In addition, the company reported $ 2.99 billion in cash inflows from operating activities during the year.
We don’t expect the stock price to go up as it has already recovered from its pre-Covid high of $ 82. In addition, coronavirus cases are increasing again in all regions, which does not bode well for automotive companies, including Paccar, as the fear of further restrictions remains. This may result in reduced consumer spending, which, in turn, will affect Paccar’s revenues and earnings in 2021.
[Updated 10/20/2020] Paccar’s inventory: time for Paccar’s movement to become slower and slower?
After an increase of more than 80% in relation to the March lows of this year, at the current price close to US $ 90 per share, we believe Paccar stock (NASDAQ: PCAR) is overvalued. Paccar, one of the largest manufacturers of medium and heavy trucks in the world, has seen its stock increase from $ 50 to $ 90 since March 23 compared to the S&P 500, which has increased by nearly 56% from recent casualties . The stock outperformed the market and hit a 52-week high recently. The shares appear to be about to fall, as the price increase has occurred, despite a large decline in revenue in the second quarter of 2020 (down 53% year-over-year). Second-quarter 2020 earnings also dropped to $ 0.43 (down 76% year-over-year).
The 30% increase in PCAR’s share price between fiscal 2017 and fiscal 2019 is justified by the growth in earnings over those two years. Paccar’s revenue increased 32% from $ 19.5 billion in 2017 to $ 25.6 billion in 2020. This effect was amplified by increasing margins from 8.6% to 9.3% during this period. Per share, earnings increased from $ 4.76 to $ 6.88. Higher revenues and margins were driven by an increase in truck deliveries mainly in the US and Canada.
During the same period, the P / E multiple decreased from 14x to 11x. This was because the increase in the share price was less than the growth in EPS. Although the company’s P / E is now 13x, there is a risk of falling when the current P / L is compared to the levels seen in recent years. 11x P / E at the end of 2019 and 9x at the end of 2018.
Where is the stock going?
The global spread of the coronavirus led to the blockade in several cities around the world, which affected industrial and economic activity. With most people working from home, the demand for Paccar trucks has dropped dramatically. The company saw truck deliveries drop to 18,100, down 65% year on year in the second quarter of 2020. For the second quarter, revenue was recorded at $ 3.1 billion, down 53% year on year .
Actual recovery and timing depend on a broader containment of the spread of the coronavirus. Our panel Trends in Covid-19 cases in the USA provides an overview of how the pandemic is spreading in the US and contrasts with trends in Brazil and Russia. Following the Fed’s stimulus – which has set a floor for fear – the market has been willing to “examine” the current period of weakness and take a long-term view. With investors focusing their attention on the 2021 results, valuations become important to find value. While market sentiment may be unstable, evidence of an increase in new cases may scare investors once again.
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