The electric vehicle boom is finally here. The advancement in technologies, stricter emissions and fuel-economy targets and increasing commercial viability of green vehicles — both in terms of affordability and charging infrastructure — are boosting the environment-friendly EV market.

One of the leading truck manufacturers in the world, PACCAR (PCAR Quick QuotePCAR - Free Report) , is betting big on innovative technologies and electric and hydrogen fuel cell-powered vehicles to keep up with the changing dynamics of the auto industry. PACCAR’s CEO Preston Feight believes that EV offerings will play a big role in the company’s medium-long-term prospects. He said during the last earnings call, “We think that the EV market, the zero-emissions vehicle market will just gradually grow. We're well positioned for that growth. And we have some fantastic vehicles out there that are providing great experiences.”

PCAR’s Strides in Trucking Revolution

PACCAR's leading brands include Kenworth, Peterbilt and DAF, and the company has already rolled out electric versions of some of its most popular models. Currently, it has nine EV models in production. This trucking titan is leading the industry in electric, connected and autonomous commercial vehicles. In fact, at the CES 2023 Transportation Hall, PCAR was the only trucking OEM with a booth for exhibiting its vehicles with advanced technologies. The displayed vehicles included a battery-powered Peterbilt 579EV, a hydrogen fuel-cell Kenworth T680E and a Peterbilt autonomous Model 579.

The Peterbilt 579EV model is currently under production and is suitable for regional distribution and port drayage applications. The Peterbilt 579 model is equipped with PACCAR’s autonomous vehicle platform and configured with Aurora’s self-driving system. The second-gen hydrogen fuel cell Kenworth T680E is developed jointly with the Japan-based auto giant Toyota. At the CES 2022, PACCAR showcased Kenworth T680E battery-electric truck, having a range of 150 miles and fast charge time utilizing PACCAR’s battery charging solution, making it an ideal choice for regional haul and urban distribution applications.

Last year, PACCAR’s capex and R&D costs totaled $505 million and $341.2 million, respectively. For 2023, PACCAR targets to invest $525-$575 million in capital projects. It plans to spend $360-$410 million in R&D. The company is ramping up investments in next-gen clean diesel and electric powertrain technologies, connected vehicle services, self-driving systems and advanced manufacturing and distribution capabilities.

PACCAR’s next-gen vehicle offerings and increasing investments to build the same demonstrate its commitment to reducing emissions and improving fuel efficiency. Accelerated efforts toward electrification, connected vehicle services and advanced driver-assistance system options are set to bolster PACCAR’s prospects. 

We Are Optimistic on PCAR

Last year, PACCAR achieved record annual revenues and net income of $28.8 billion and $3.01 billion, respectively, led by robust growth across major truck markets and impressive results in its Parts and Financial Services units.

In the U.S. and Canadian markets, Class 8 truck retail sales hit 283,500 units in 2022. The 2023 U.S. and Canadian Class 8 truck market deliveries are forecast in the range of 270,000-310,000 vehicles. In 2022, the European above 16-ton truck registrations reached 298,000 units and is forecast in the band of 270,000-310,000 units for this year.

Pent-up demand and customers’ need to replace aging fleets with newer and superior models bode well for PACCAR’s demand for Kenworth, DAF and Peterbilt models. The DAF lineup comprising XF and XG models (launched in 2021) and the XD model (launched in 2022) is improving the company’s product mix. The DAF XG distribution and vocational truck was named the 2023 International Truck of the Year. PACCAR’s newer trucks are achieving popularity thanks to their premium quality, better fuel efficiency and lower operating costs.

While PACCAR derives the bulk of its revenues from truck sales, it also produces and sells a wide range of parts, including its own brand of engines. Continued growth in the aftermarket parts—which is a high margin and a less cyclic business— thanks to the rampant adoption of its proprietary MX engine bodes well. In 2022, PACCAR Parts new records for annual revenues and profits. as high truck utilization contributed to strong global demand for parts. Customers’ high truck utilization and increased average fleet age are positively impacting PACCAR Parts results and the trend will continue this year as well. An expanding network of parts distribution centers, dealer locations and independent TRP stores and managed dealer inventory and innovative e-commerce systems are aiding the unit’s prospects.

Strong financials and investor-friendly moves also boost confidence. PACCAR’s robust balance sheet is complemented by A+/A1 credit ratings assigned by Standard & Poor's and Moody's, respectively. The company's long-term debt-to-capital ratio stands at 0.37, lower than its industry's 0.41. The low leverage increases its financial flexibility to tap into growth opportunities. The firm's times interest earned ratio of 17 is higher than the industry’s 10.46, signifying low default risk. It should be noted that PACCAR has paid a dividend every year since 1941. It increased its dividend eight times in the last five years, with an average annualized growth of 5.51%.

The Zacks Consensus Estimate for PCAR’s 2023 sales and revenues indicates a year-over-year growth of 6.3% and 12.6%, respectively. PCAR has established a healthy track record of earnings surprises as the firm has surpassed estimates in each of the past four quarters, with an average earnings surprise of 14.15% over that timeframe. The stock has performed admirably over the past year and is up nearly 32.3%—handily outperforming the industry’s decline of 37.6%.

Image Source: Zacks Investment Research

Hit the Buy Button Now?

While PCAR remains an appealing investment option for the long haul, thanks to its innovative offerings and expanding production capacities, short-term uncertainties persist. The recessionary fears might reduce the demand for Class 8 trucks. Supply chain chaos, albeit gradually easing, is far from over. Manufacturing inefficiencies associated with supply-chain disruptions, high commodity costs, tough labor market and logistical challenges will play spoilsport. Despite these near-term hiccups, PACCAR is worth holding onto. Those who haven’t invested in the stock yet, could wait for a pullback and grab the stock at a better entry point.

PACCAR currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A Better Ranked Stock From the Same Industry

Blue Bird Corp. (BLBD Quick QuoteBLBD - Free Report) : Headquartered in Cambridge, BLBD is engaged in the designing, engineering, manufacturing and sale of school buses and related parts. It also offers alternative fuel applications with its propane-powered and compressed natural gas-powered school buses.

The stock currently carries a Zacks Rank #2 (Buy) and a VGM Score of B. The Zacks Consensus Estimate for Blue Bird’s fiscal 2023 earnings and sales suggest year-over-year growth of 140% and 23.7%, respectively.