Paccar Shares Under Pressure

We keep our Hold rating on truckmaker Paccar, Inc. (PCAR - Analyst Report) due to the strong downturn in the Class 8 vehicles market. The company cut its retail sales forecast as it expects the economic slowdown to continue through the first half of the year. Paccar is also losing out on margins by sourcing engines externally and is currently not capturing as much of the downstream parts business as it could.

A decline in the company’s commercial truck unit sales, an increase in residual value risk due to lower used-truck pricing, and increased funding costs are factors which may negatively affect the Paccar’s financial services operations. Although assets of the financial services segment are secured by underlying equipment collateral, in the event a customer fails to meet his obligations to the company, there is a risk that the value of the underlying collateral will not be sufficient to recover the amounts owed to Paccar, resulting in credit losses.

On a positive note, Paccar is benefiting from rising prices and increasing market share, along with strong growth in Mexico and Australia. Currently, the stock is valued at 15.7x our 2008 earnings of $3.40. We have a target of $55 on the stock, which is 16.2x our 2008 earnings estimate.

Read the full analyst report on PCAR

Read the full analyst report on PCAR