On Wednesday, Goldman Sachs (NYSE:GS) maintained its Neutral rating on PACCAR (NASDAQ:PCAR) with a steady price target of $121.00. The decision comes after a detailed review of the company's third-quarter financial results, which highlighted increased costs for both truck manufacturing and parts. The firm has adjusted its earnings per share (EPS) estimates for 2025 and 2026, reducing them by approximately 8%.
The revised EPS forecasts are now set at $7.20 for 2025 and $8.98 for 2026, down from the previous estimates of $7.75 and $9.79, respectively. This adjustment is attributed to a 3% year-over-year rise in truck cost inflation, which was higher than the 1% increase in the second quarter. The second quarter had benefited from normalizing warranty accruals. Additionally, parts inflation rose by 4% year-over-year, surpassing pricing by 1%.
Despite these cost pressures, the report acknowledged some positive aspects such as increased aftermarket sales and a robust market share performance. However, Goldman Sachs has lowered its profit per truck estimate for the fourth quarter of 2024 by 4%, bringing it to $12,300. This change is primarily due to an unfavorable product mix, with the production shifting towards day cabs, which have lower margins compared to sleepers, which have higher margins.
The firm also noted that this mix shift is currently at historically high levels, echoing the sentiments of PACCAR's management during their conference call, where they discussed expectations for stabilized margins in the fourth quarter. Goldman Sachs highlighted the industry's challenge in maintaining a balance between price and cost, especially in comparison to previous cycles.
The analysis by Goldman Sachs includes an anticipation of a $7,500 quarterly peak-to-trough decline in profit per truck for PACCAR. This represents a 38% decrease, which is compared to a $4,000 decline (40%) in 2016 and a $1,700 decline (19%) in 2007. This projection is part of the firm's rationale behind maintaining the current stock rating and price target.
In other recent news, PACCAR Inc (NASDAQ:PCAR). experienced a series of updates from financial analysts. Citi raised PACCAR's share price target to $110.00, while maintaining a neutral rating, following the company's third-quarter results. The firm adjusted the fourth-quarter earnings per share (EPS) estimate to $1.65 due to lower gross margins. However, the EPS estimates for 2025 and 2026 were increased, reflecting improved forecasts for the U.S. and Canadian markets.
BofA Securities and Truist Securities, however, reduced their price targets for PACCAR to $107, maintaining neutral and hold ratings respectively. This followed an 8% year-over-year decline in adjusted EPS and a drop in gross margin. PACCAR anticipates a fall in gross margins to 17% in the third quarter, with truck deliveries estimated to be between 43K and 44K units.
In addition to these recent developments, PACCAR reported strong second-quarter financial results, with 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.
PACCAR also announced a regular quarterly cash dividend of thirty cents ($0.30) per share. 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.
InvestingPro Insights
PACCAR's financial metrics and market position offer additional context to Goldman Sachs' analysis. According to InvestingPro data, PACCAR boasts a market capitalization of $54.93 billion and a P/E ratio of 12.26, suggesting a relatively attractive valuation. 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 stands at 4.2%, with an impressive dividend growth of 49.32% over the last twelve months. An InvestingPro Tip highlights that PACCAR has maintained dividend payments for 54 consecutive years, demonstrating a strong commitment to shareholder returns despite the cost pressures noted in the Goldman Sachs report.
While Goldman Sachs adjusted its EPS estimates downward, it's worth noting that PACCAR's revenue for the last twelve months was $34.83 billion, with a gross profit margin of 18.49%. The company's ability to generate substantial revenue and maintain profitability in the face of inflationary pressures speaks to its operational efficiency.
For investors seeking a deeper understanding of PACCAR's financial health and market position, InvestingPro offers 13 additional tips, providing a comprehensive view of the company's strengths and potential challenges in the current economic environment.
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