Oshkosh Provides 'Even Risk/Reward,' According To Buckingham

According to analysts from Buckingham Research Group, industrial company Oshkosh Corp. OSK represents a fairly balanced risk/reward profile.

The Analyst

Analyst Neil Frohnapple initiated coverage on Oshkosh with a Neutral rating and a $76 price target.

The Thesis

Frohnapple remains positively biased based on a constructive view of the North American equipment rental industry, as well as the outlook for the Defense Segment production.

“However, we think it could be more difficult than expected to achieve meaningful price realization in the Access Equipment Segment in FY19 to fully offset steel inflation when considering the competitive dynamics created from a stronger USD,” Frohnapple said in a note.

Frohnapple sees three key drivers for the investment opinion.

Oshkosh’s Defense Segment revenue is likely to increase in the future as production rises in the Joint Light Tactical Vehicle program. Frohnapple calculates this program will provide nearly $500 million in 2019 and 2020.

However, other company segments will face headwinds, as higher steel input costs are not yet updated for inflation.

Frohnapple expects Oshkosh will generate over $800 million of free cash flow into next year, as well as the increased dividend and the repurchasing of shares.

“We think the company could also be opportunistic on the M&A front for bolt-on deals to expand the Fire & Emergency or Commercial Segments,” Frohnapple said.

Price Action

Oshkosh shares traded around $71.1 at time of publication.

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