Peak Coming In Class 8 Trucks? What RBC Sees

• PACCAR Inc (NASDAQ: PCAR) has seen a 23.78 percent decline in its share price year-to-date, which almost hit the 52-week low on November 12.
• RBC Capital’s Seth Weber has downgraded the rating on the company from Outperform to Sector Perform, while lowering the price target from $64 to $57.
• Weber expects the signs of the NAFTA C1 8 truck cycle peaking to offset improvements in Europe, while limiting share price appreciation.

According to the RBC Capital report, “Whereas PCAR remains a best in class operator with significant cash/generating capability that has demonstrated strong margin execution in recent quarters, we see slowing Class 8 demand as validating peak cycle concerns and weighing on valuation/limiting upside to shares.”

Analyst Seth Weber expects 2015 to be either in-line with or slightly better than the estimates, although the softening metrics in North America have led to a greater than anticipated weakening in Class 8 truck demand, which had earlier been expected to remain “relatively resilient” through 2016.

In addition, Weber noted that there were sufficient headwinds to imply that orders were unlikely to reaccelerate any time soon.

The NAFTA Class 8 industry build estimate had been lowered from 285,000 to 270,000. Although Weber believes that still is relatively healthy, the decline is steeper than earlier estimated.

For 2017, Weber expects the company to see lower margin and revenue, given that elevated industry inventory is expected to lead to a decline in OEM build plans, while RBC Capital’s recent Dealer Survey suggests that there could be pricing or incentive pressures.

The EPS estimates for FY16 and FY17 have been lowered from $4.50 to $4.33 and from $4.10 to $3.90, respectively.