Credit Suisse Downgrades PACCAR On Transport Sector Slowdown, Stock Outperformance

Credit Suisse analyst Jamie Cook downgraded PACCAR Inc PCAR from Outperform to Neutral and lowered the price target from $107 to $105.
The analyst said PCAR’s stock is up 18% over the past three months. With the stock near all-time highs, the analyst believes the market appropriately recognizes PCAR as a high-quality industrial with improved through cycle margins and earnings reflecting strategic investments in next-generation products and growth in the aftermarket/parts business.
The company continues to successfully manage supply chain challenges and inflationary pressures, which has led to improved margins throughout 2022, said the analyst.
Margins have benefited from pricing actions, favorable mix tied to next generation products and growing aftermarket as well as market share gains, added the analyst.
The analyst noted that transports are facing a slowdown in macro tied to weak demand and elevated inventories.
North American truck backlogs should lead to solid earnings visibility/beats through the first half of 2023 as supply chains normalize, but this is backward-looking, said the analyst.
The analyst believes 2022 is peak production for Class 8 truck and see truck production moderating over the next two years tied to strength in production over the past two years and weaker macro, which transports are already experiencing.
PCAR also generates 25% of sales from Europe which is at risk of demand tempering in the second half of 2023 and into 2024, the analyst remarked.
The analyst also believes order trends will be a more important driver of stock performance as a better leading indicator of demand.
Looking ahead, orders are expected to moderate from peak levels. While the analyst believes this truck downturn to be less severe versus history and view PCAR will successfully navigate as usual, PCAR’s stock cannot outperform broader Machinery.
Price Action: PCAR shares are trading lower by 0.12% at $100.94 on the last check Thursday.

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