BMO Capital Bullish on Trucking Recovery

BMO Capital released a research note Tuesday which detailed its bullish view of the trucking industry as a whole and four companies:

• Rush Enterprises, Inc RUSHA,
• Cummins, Inc. CMI,
• WABCO Holdings, Inc. WBC,
• PACCAR Inc. PCAR.

Analyst Joel Tiss took the lead on this note and began with a look at the industry as a whole. Tiss began with the comment, "While the trucking cyclical recovery has been taking much longer to unfold than expected, our patience seems to be paying off as many of the stocks have seen significant gains since the bottom in 2011". Tiss continued by stating he believes "earnings appear set to continue improving on double-digit volume growth largely driven by pent-up demand.

Looking to North America, Tiss notes that industry experts say truck fleet utilization is near 91 percent which he explains is "significant" because typically when utilization rates above 89 percent a expansion cycle occurs. Tiss also noted that each 1 percent above 89 signifies the need for approximately 35,000 new truck to be put into service.

In a look at 2014 through 2015, Tiss listed to Important factors, 1) 2015 will see follow-through to at least the 2014 demand levels; and 2) second half 2014 orders are likely to cool from the current pace, which is skewed seasonally.

After providing a outlook on the industry as a whole, Tiss gave a brief look on each of the previously mentioned companies.

Rush Enterprises

Commenting on the firm's estimates, Tiss stated, "We believe

Cummins, Inc.

Looking to Cummins' market exposure Tiss noted, "The out-sized exposure to emerging markets has been a bit of a drag in the shorter term but remains an area of longer-term attraction and market growth out performance." Tiss also noted that in respect to natural gas engines, Cummins has the best-in-class technology as well as the "largest lineup" of any manufacturer.

WABCO Holdings, Inc.

In describing the justification of this increased price target, Tiss emphasized WABCO's Automatic Manual Transmission (AMT) which allows for maximum fuel efficiency. Tiss explained this product has performed well due to WABCO's strong relationships with Daimler and Volvo, and the increased push by these companies to become global players in the trucking industry.

PACCAR

Tiss appears hopeful for PACCAR but remained cautious stating, "While the company has introduced a large number of new products and there are ample signs that end markets are recovering, it increasingly seems that customers see few differences among the various truck brands.

This may have a negative impact on PACCAR's medium-term ability to position its trucks at the premium end of the pricing spectrum." However, Tiss did note that incremental truck orders beginning in March have seen 3 - 5 percent price increase which he says should help profitability for the later part of the second quarter as well as the second half of 2014.