Defense Is Facing An Air Pocket In 2018; BofA Downgrades Oshkosh
Bank of America's Ross Gilardi downgraded Oshkosh's stock from Neutral to Underperform with a price target lowered from $75 to $60 as investor expectations are too bullish and the stock is "vulnerable" to a de-rating amid concerning defense spending trends.
Oshkosh guided its fiscal 2017 revenue to $1.85 billion with a 10.0 percent operating margin, the analyst noted in a research report. While management hasn't provided a specific outlook for its business for fiscal 2018 the company targeted a range of $1.7 to $2.0 billion in defense revenue through 2020. Meanwhile, consensus earnings per share estimates is positioned towards the high end of the company's guidance, which implies bias to the downside.
"In our view, shares seem vulnerable to de-rating over the next 6-12 months on a potential air pocket in Defense revenue in FY18," Gilardi wrote.
Also, investors are bullish on the company's Access demand prospects based on a tight rental market and order improvements seen in the quarter, the analyst continued. While replacement demand for Access Equipment will certainly pick up at some point, it's not clear if this will occur in fiscal 2018 or even the following year as rental companies make use of a just-in-time ordering system.
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