Industry Weakness Could Reflect Unfavorably Upon PACCAR

Given the weakening industrial production and durable goods orders, JPMorgan’s Ann Duignan expects the truckload market to continue to be weak in 2016, which could adversely impact freight rates into 2017.

Duignan downgraded the rating on PACCAR Inc PCAR from Neutral to Underweight, while lowering the price target from $58 to $47.

Weakness Expected

The analyst pointed out that the U.K. was the highest DAF share market in Europe, and demand in the region was expected to weaken in the near term.

PACCAR has among the highest top-line exposures to the U.K. in JPMorgan’s coverage, which the analyst believes would pressure the stock in the near term.

“Additionally, while we expect the European HD truck market to grow in 2016, PCAR’s key end markets, especially the UK, are likely to come under pressure in the near term,” Duignan stated.

Also, the North American truck fundamentals are expected to remain weak, with further production cuts expects in 2H16.

The EPS estimate for 2016 has been lowered from $3.85 to $3.80, while the EPS estimate for 2017 has been lowered from $4.00 to $3.70.

At time of writing, PACCAR was down 6.85 percent on the day at $48.41.