April 17, 2012
Truck maker PACCAR (Nasdaq: PCAR ) is looking all charged up after its stellar fourth quarter and recent truck launches. But is it totally free from weakness? No company is perfect, and only a detailed scrutiny can give us a clear picture. Let's take a look at where PACCAR stands.
- Brand name: PACCAR's top-selling brands Kenworth and Peterbilt were awarded for customer satisfaction by global research company J.D. Power and Associates last year. Kenworth has won the customer satisfaction award 22 times to date.
- Global presence: Markets outside the U.S. and Europe account for nearly a quarter of PACCAR's revenue, and the company is investing to further strengthen its foothold in the rapidly growing emerging markets. Brazil, India, China, and Russia are some of the markets the company has recently invested in.
- Impressive financials: PACCAR's total debt-to-equity ratio of 126.1% might seem high, but it doesn't come as a major surprise considering the capital-intensive nature of PACCAR's business. What's great is that with an interest coverage ratio of more than 100 times, unlevered free cash flow of over $1 billion, and cash equivalents of around $2 billion (both as of Dec. 31,2011), the company can boast of strong financials.
- Outstanding dividend history: PACCAR has been rewarding shareholders with dividends every year since 1941. Last year was no different, as total dividends increased by 88% from 2010 levels.
- European woes: Europe is an important market for PACCAR, accounting for nearly a third of its revenue. Weakness in the region has compelled PACCAR's DAF unit (which is a big truck producer in Europe) to reduce its production by nearly 20%.
- Rebounding truck market: Higher freight rate and tonnage is fueling a strong recovery of the North American truck market, which is great news for PACCAR. Also, a rise in the number of aging vehicles will also mean higher aftermarket sales for the company.
- Stepping on the gas: PACCAR is powering its trucks for the future by increasingly opting for alternative fuel. It will fit a wider range of trucks with the new heavy-duty engines made by Cummins (NYSE: CMI ) in collaboration with Westport Innovations (Nasdaq: WPRT ) . High on fuel efficiency and emission standards, the use of these engines should put PACCAR in a good position to cash in on the rising popularity of natural gas as a fuel. Peer Navistar International (NYSE: NAV ) also opted for Cummins Westport engines to power its new trucks.
- Emerging market potential: Opportunities to expand in markets like China, which is the world's biggest truck market, are plenty. Other nations such as India and Brazil are coming up, too. PACCAR's expansion initiatives in these countries could take the company far.
- Eurozone tensions: Impending crisis in Europe remains a big concern for PACCAR. If the situation worsens, PACCAR's top line could take a substantial hit.
- Global slowdown: Slowdown in international markets (like concerns about China currently making the rounds) could weigh on PACCAR's revenue and growth plans.
The Foolish bottom line
PACCAR is a fundamentally strong company that keeps rewarding shareholders with good returns. Weathering macro challenges shouldn't be tough for it. With pros outweighing cons in PACCAR's case, I suggest you add it to your stock watchlist to stay updated on all its news and analysis. Click here to add PACCAR to your stock watchlist.
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