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Salesforce and Advanced Micro Devices have been highlighted as Zacks Bull and Bear of the Day
Read MoreHide Full Article
For Immediate Release
Chicago, IL – March 10, 2023 – Zacks Equity Research shares Salesforce (CRM - Free Report) as the Bull of the Day and Advanced Micro Devices (AMD - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on PACCAR (PCAR - Free Report) and Blue Bird Corp. (BLBD - Free Report) .
Salesforce surged after the firm topped Q4 FY23 estimates on March 1 and provided upbeat guidance. The vanguard of modern business software assured activist investors and Wall Street on its earnings call and with its updated outlook that Salesforce is ready to focus on profitability over nearly everything else.
Salesforce is poised to boost its margins and buybacks in the near term instead of chasing further acquisitions. CRM shares have surged over 35% YTD, yet they still hover near pre-pandemic levels from early 2020. Plus, Salesforce’s valuation has improved dramatically.
Salesforce’s subscription-based offerings remain critical to around 150,000 companies in our digital-driven world. All told, it might be time to consider buying Salesforce stock as a long-term stable tech play.
Business Essentials
Salesforce helped start the software-as-a-service industry that nearly every business, government, and countless other entities rely on today to help them accomplish just about everything. Its various divisions support sales, marketing, commerce, communication, customer and client engagement, analytics, app development, and beyond.
The company has grown its top line at an impressive clip since its 2004 IPO. CRM posted between roughly 25% and 35% sales growth for 10 straight years through its fiscal 2022—going from $3.1 billion in FY13 to $26.5 billion in FY22 (2021). Salesforce’s massive and steady expansion highlights the strength of its business model and the constant need for companies of all shapes and sizes to adapt to the quickly changing tech-fueled business landscape.
Salesforce made a few large acquisitions over the last several years to expand its reach. These efforts include its $28 billion deal to buy Slack in the summer of 2021 to help CRM compete against Microsoft and Zoom Video in the evolving work communication space. The deal came roughly two years after Salesforce paid $15 billion for data analytics platform Tableau.
Recent Performance & New-Found Profitably Focus
Salesforce’s fiscal 2023 (2022) revenue jumped 18% (22% in constant currency) to $31.4 billion to help boost its adjusted earnings by 10%. The firm’s adjusted operating margin popped from 18.7% in FY22 to 22.5% in FY23. The company also topped our Q4 FY23 estimates on March 1, with CRM beating the Zacks EPS estimates by 24%.
Looking ahead, which is always far more important, CRM projects adjusted operating margins of about 27% in FY24. It was only last year that Salesforce executives laid out a plan to boost its adjusted operating margins to 25% by 2026. “Improving profitability is our highest priority, and that really showed up this quarter,” co-founder and CEO Marc Benioff said on its recent earnings call.
“Our goal is to make Salesforce the largest and most profitable software company in the world, and that is what we are doing.”
The chief executive said the firm needed to “repress the hyperspace button” on its transformation plan for profitable growth. The accelerated transformation plan includes short-term and long-term restructuring, which includes reducing its workforce, lowering real-estate costs and spending, as well as improving profitability and productivity over the long haul.
Salesforce also said it’s disbanding its M&A committee. All of these pushes toward greater profitability come amid an activist investor push and slowing growth, which coincides with a slowing economy, its sheer size, and more. Salesforce is focused on a transformational FY24 that includes a beefed-up share repurchase plan from $10 billion to $20 billion.
Salesforce provided upbeat top and bottom-line guidance for the current fiscal 2024. Current Zacks estimates call for its revenue to climb 10.5% this year to $34.6 billion and then another 11% in FY25 to $38.5 billion.
Better yet, its adjusted earnings are projected to climb 33% and 26%, respectively during this same stretch. On top of that, CRM’s consensus FY24 and FY25 earnings estimates have surged since its recent release it to help it land Zacks Rank #1 (Strong Buy) right now.
Other Fundamentals
Salesforce stock is up roughly 36% YTD to crush the S&P 500’s 4% pop and the Zacks Tech sector’s 13% climb. CRM shares are now comfortably above its 50-day and 200-day moving average. Plus, the stock just experienced a so-called golden cross, which is when the shorter-term moving average crosses over a major long-term moving average.
At roughly $180 per share, Salesforce stock trades 18% below its average Zacks price target and still sits around 40% beneath its 2021 peaks. The downturn, coupled with its hugely improved earnings outlook has Salesforce trading at 30.4X forward 12-month earnings. This marks a massive discount to its five-year highs of 206X and its five-year median of 120X. This time last year, CRM was trading at 90X forward earnings.
Bottom Line
A recent pullback has Salesforce stock back under overbought RSI levels (70 and above) at 61. And Wall Street is rather bullish on Salesforce, with 22 of the 37 brokerage recommendations Zacks has at “Strong Buys,” alongside only one “Strong Sell.”
Salesforce’s subscription software offerings aren’t going out of style anytime soon in our digital world. And the firm’s new-found focus on margins and profitability should attract long-term investors to this tech giant.
Advanced Micro Devices has been one of the biggest success stories in the semiconductor space over the last five or so years. The company’s various offerings expose it to growth in data centers, gaming, and beyond.
AMD reported another stellar year of revenue and earnings growth in late January. But AMD provided a downbeat near-term outlook as its PC and gaming segments take a hit, which has sent its earnings estimate revisions in the wrong direction.
AMD Basics
AMD’s processor offerings service the gaming industry, as well as data centers, and the PC market. Its GPUs compete against the likes of Nvidia and other gaming giants and its CPUs challenge industry power Intel. The firm’s ability to expand beyond the PC market into gaming and servers helped it catapult its sales as it rides multiple secular trends.
AMD revenue soared from $4.3 billion in FY16 to $23.6 billion in 2022. This run included 45% YoY expansion in 2020, 68% in FY21, and another 44% in FY22. AMD did, however, guide lower for 2023, with its first quarter 2023 revenue project to dip 10% YoY, based on Zacks estimates as it faces hard to compete against periods. The firm said that its “Client and Gaming segments are expected to decline, partially offset by Embedded and Data Center segment growth.”
AMD’s FY23 revenue is projected to dip slightly and then bounce back in 2024. Meanwhile, its adjusted earnings are expected to tumble -50% YoY in the first quarter and -41% in Q2 to help its fiscal 2023 total drop by -14% from $3.50 a share to $3.01 per share.
Bottom Line
AMD’s recent downward earnings revisions help it land a Zacks Rank #5 (Strong Sell) right now and are part of a wider negative trend as the historically cyclical industry faces ongoing headwinds amid a slowing economy. AMD also lands an overall “D” VGM grade, with an “F” for Value and a “D” for Growth at the moment.
Despite the guidance and near-term outlook, AMD stock is still up roughly 30% YTD as beaten-down tech and chip stocks storm back, which includes Nvidia’s 60% run higher. Therefore, a pullback could be in order as the worry is the Fed isn’t done raising rates and the wider earnings picture might fade for the back half of 2023.
AMD stock is still down nearly 50% from its highs and it boasts solid long-term potential. But now might be time for near-term investors to stay away from AMD given the huge run it’s already made over the last two months and the possibility for management to provided lower guidance down the road.
Additional content:
Is Paccar (PCAR - Free Report) Ready to "Charge" into an Electric Future?
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, 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%.
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.
Blue Bird Corp.: 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.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index.Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Salesforce and Advanced Micro Devices have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – March 10, 2023 – Zacks Equity Research shares Salesforce (CRM - Free Report) as the Bull of the Day and Advanced Micro Devices (AMD - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on PACCAR (PCAR - Free Report) and Blue Bird Corp. (BLBD - Free Report) .
Here is a synopsis of all four stocks.
Bull of the Day:
Salesforce surged after the firm topped Q4 FY23 estimates on March 1 and provided upbeat guidance. The vanguard of modern business software assured activist investors and Wall Street on its earnings call and with its updated outlook that Salesforce is ready to focus on profitability over nearly everything else.
Salesforce is poised to boost its margins and buybacks in the near term instead of chasing further acquisitions. CRM shares have surged over 35% YTD, yet they still hover near pre-pandemic levels from early 2020. Plus, Salesforce’s valuation has improved dramatically.
Salesforce’s subscription-based offerings remain critical to around 150,000 companies in our digital-driven world. All told, it might be time to consider buying Salesforce stock as a long-term stable tech play.
Business Essentials
Salesforce helped start the software-as-a-service industry that nearly every business, government, and countless other entities rely on today to help them accomplish just about everything. Its various divisions support sales, marketing, commerce, communication, customer and client engagement, analytics, app development, and beyond.
The company has grown its top line at an impressive clip since its 2004 IPO. CRM posted between roughly 25% and 35% sales growth for 10 straight years through its fiscal 2022—going from $3.1 billion in FY13 to $26.5 billion in FY22 (2021). Salesforce’s massive and steady expansion highlights the strength of its business model and the constant need for companies of all shapes and sizes to adapt to the quickly changing tech-fueled business landscape.
Salesforce made a few large acquisitions over the last several years to expand its reach. These efforts include its $28 billion deal to buy Slack in the summer of 2021 to help CRM compete against Microsoft and Zoom Video in the evolving work communication space. The deal came roughly two years after Salesforce paid $15 billion for data analytics platform Tableau.
Recent Performance & New-Found Profitably Focus
Salesforce’s fiscal 2023 (2022) revenue jumped 18% (22% in constant currency) to $31.4 billion to help boost its adjusted earnings by 10%. The firm’s adjusted operating margin popped from 18.7% in FY22 to 22.5% in FY23. The company also topped our Q4 FY23 estimates on March 1, with CRM beating the Zacks EPS estimates by 24%.
Looking ahead, which is always far more important, CRM projects adjusted operating margins of about 27% in FY24. It was only last year that Salesforce executives laid out a plan to boost its adjusted operating margins to 25% by 2026. “Improving profitability is our highest priority, and that really showed up this quarter,” co-founder and CEO Marc Benioff said on its recent earnings call.
“Our goal is to make Salesforce the largest and most profitable software company in the world, and that is what we are doing.”
The chief executive said the firm needed to “repress the hyperspace button” on its transformation plan for profitable growth. The accelerated transformation plan includes short-term and long-term restructuring, which includes reducing its workforce, lowering real-estate costs and spending, as well as improving profitability and productivity over the long haul.
Salesforce also said it’s disbanding its M&A committee. All of these pushes toward greater profitability come amid an activist investor push and slowing growth, which coincides with a slowing economy, its sheer size, and more. Salesforce is focused on a transformational FY24 that includes a beefed-up share repurchase plan from $10 billion to $20 billion.
Salesforce provided upbeat top and bottom-line guidance for the current fiscal 2024. Current Zacks estimates call for its revenue to climb 10.5% this year to $34.6 billion and then another 11% in FY25 to $38.5 billion.
Better yet, its adjusted earnings are projected to climb 33% and 26%, respectively during this same stretch. On top of that, CRM’s consensus FY24 and FY25 earnings estimates have surged since its recent release it to help it land Zacks Rank #1 (Strong Buy) right now.
Other Fundamentals
Salesforce stock is up roughly 36% YTD to crush the S&P 500’s 4% pop and the Zacks Tech sector’s 13% climb. CRM shares are now comfortably above its 50-day and 200-day moving average. Plus, the stock just experienced a so-called golden cross, which is when the shorter-term moving average crosses over a major long-term moving average.
At roughly $180 per share, Salesforce stock trades 18% below its average Zacks price target and still sits around 40% beneath its 2021 peaks. The downturn, coupled with its hugely improved earnings outlook has Salesforce trading at 30.4X forward 12-month earnings. This marks a massive discount to its five-year highs of 206X and its five-year median of 120X. This time last year, CRM was trading at 90X forward earnings.
Bottom Line
A recent pullback has Salesforce stock back under overbought RSI levels (70 and above) at 61. And Wall Street is rather bullish on Salesforce, with 22 of the 37 brokerage recommendations Zacks has at “Strong Buys,” alongside only one “Strong Sell.”
Salesforce’s subscription software offerings aren’t going out of style anytime soon in our digital world. And the firm’s new-found focus on margins and profitability should attract long-term investors to this tech giant.
Bear of the Day:
Advanced Micro Devices has been one of the biggest success stories in the semiconductor space over the last five or so years. The company’s various offerings expose it to growth in data centers, gaming, and beyond.
AMD reported another stellar year of revenue and earnings growth in late January. But AMD provided a downbeat near-term outlook as its PC and gaming segments take a hit, which has sent its earnings estimate revisions in the wrong direction.
AMD Basics
AMD’s processor offerings service the gaming industry, as well as data centers, and the PC market. Its GPUs compete against the likes of Nvidia and other gaming giants and its CPUs challenge industry power Intel. The firm’s ability to expand beyond the PC market into gaming and servers helped it catapult its sales as it rides multiple secular trends.
AMD revenue soared from $4.3 billion in FY16 to $23.6 billion in 2022. This run included 45% YoY expansion in 2020, 68% in FY21, and another 44% in FY22. AMD did, however, guide lower for 2023, with its first quarter 2023 revenue project to dip 10% YoY, based on Zacks estimates as it faces hard to compete against periods. The firm said that its “Client and Gaming segments are expected to decline, partially offset by Embedded and Data Center segment growth.”
AMD’s FY23 revenue is projected to dip slightly and then bounce back in 2024. Meanwhile, its adjusted earnings are expected to tumble -50% YoY in the first quarter and -41% in Q2 to help its fiscal 2023 total drop by -14% from $3.50 a share to $3.01 per share.
Bottom Line
AMD’s recent downward earnings revisions help it land a Zacks Rank #5 (Strong Sell) right now and are part of a wider negative trend as the historically cyclical industry faces ongoing headwinds amid a slowing economy. AMD also lands an overall “D” VGM grade, with an “F” for Value and a “D” for Growth at the moment.
Despite the guidance and near-term outlook, AMD stock is still up roughly 30% YTD as beaten-down tech and chip stocks storm back, which includes Nvidia’s 60% run higher. Therefore, a pullback could be in order as the worry is the Fed isn’t done raising rates and the wider earnings picture might fade for the back half of 2023.
AMD stock is still down nearly 50% from its highs and it boasts solid long-term potential. But now might be time for near-term investors to stay away from AMD given the huge run it’s already made over the last two months and the possibility for management to provided lower guidance down the road.
Additional content:
Is Paccar (PCAR - Free Report) Ready to "Charge" into an Electric Future?
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, 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%.
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.: 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.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
See Stocks Free >>
Media Contact
Zacks Investment Research
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https://www.zacks.com
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index.Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.