Rush Enterprises Set Apart By Smaller Fleets, Vocational Customers, Parts And Service, Stifel Says In Upgrade

Rush Enterprises, Inc. Class A RUSHA reported first-quarter results Monday after the close with higher revenues and earnings per share. Despite a beat on the bottom line, the stock slid 4.8 percent Tuesday.

The Analyst

Stifel analyst Michael Baudendistel upgraded shares of Rush Enterprises from Hold to Buy and increased the price target from $45 to $50.

The Thesis

Rush Enterprises' multiple has contracted since last fall, which partly reflects the rationale that earnings per share could be near a cyclical high point, Baudendistel said in a Tuesday note. (See the analyst's track record here.) 

The shares are unjustly suffering due to the popular thesis that the truck cycle is peaking, Baudendistel said; the company is weighted more toward smaller fleets, vocational customers, parts and services, he said. 

All of these elements are reasonably independent from the sharp volatility in the production and sales of large fleet-purchased tractors, the analyst said. 

The earnings beat came about primarily in the new and commercial vehicle sales segment, Baudendistel said.

Aftermarket and parts revenues rose 14 percent year-over-year at Rush Enterprises and represented 64 percent of the company's gross profit on a long-term basis on 31 percent of revenues, according to Stifel. 

"We believe International's market share is off its bottom, with considerable room for improvement, and we agree with Mr. Rush on his point that Volkswagen's ownership in Navistar International Corp NAV is a positive for Rush Enterprises," Baudendistel said.

The Price Action

Rush Enterprises stock declined over 15 percent year-to-date through Monday. The stock was rallying 6.36 percent to $43.65 at the time of publication Wednesday. 

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