Paccar Inc. Analysis – October 2015 Update $PCAR

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – September 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Paccar Inc. (PCAR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): PACCAR Inc is a company operating in three principal industry segments: the Truck segment, includes the design, manufacture and distribution of light-, medium- and heavy-duty commercial trucks; the Parts segment, includes the distribution of aftermarket parts for trucks and related commercial vehicles, and the Financial Services segment, includes finance and leasing products and services provided to customers and dealers in the United States, Canada, Mexico, Europe and Australia. The Company also operates in Australia and Brazil, and sells trucks and parts to customers in Asia, Africa, Middle East and South America. The Company’s trucks are marketed under the Kenworth, Peterbilt and DAF nameplates. It also manufactures industrial winches in two plants in the United States.


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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of PCAR

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $19,242,515,401 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.66 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 16.24% Fail
6. Moderate PEmg Ratio PEmg < 20 14.37 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.70 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.66 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.63 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

PCAR value chart October 2015

EPSmg $3.80
MG Growth Estimate 14.42%
MG Value $141.94
Opinion Undervalued
MG Value based on 3% Growth $55.13
MG Value based on 0% Growth $32.32
Market Implied Growth Rate 2.93%
Current Price $54.62
% of Intrinsic Value 38.48%

Paccar Inc. qualifies for the both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is only concerned with the insufficient earnings growth over the last ten years.  The Enterprising Investor has no initial concerns.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.94 in 2011 to an estimated $3.80 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.93% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Paccar Inc. (PCAR)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

PCAR charts October 2015

Net Current Asset Value (NCAV) $2.68
Graham Number $45.63
PEmg 14.37
Current Ratio 2.66
PB Ratio 2.70
Dividend Yield 1.61%
Number of Consecutive Years of Dividend Growth 5



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Most Recent Balance Sheet Figures

Total Current Assets $15,153,200,000
Total Current Liabilities $5,699,300,000
Long-Term Debt $5,914,200,000
Total Assets $21,415,300,000
Intangible Assets $0
Total Liabilities $14,196,700,000
Shares Outstanding (Diluted Average) 356,300,000

Earnings Per Share History

Next Fiscal Year Estimate $4.55
Dec14 $3.82
Dec13 $3.30
Dec12 $3.12
Dec11 $2.86
Dec10 $1.25
Dec09 $0.31
Dec08 $2.78
Dec07 $3.29
Dec06 $3.97
Dec05 $2.91
Dec04 $2.29
Dec03 $1.33
Dec02 $0.95
Dec01 $0.44
Dec00 $1.13
Dec99 $1.46
Dec98 $1.05
Dec97 $0.87
Dec96 $0.51
Dec95 $0.64

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.80
Dec14 $3.24
Dec13 $2.69
Dec12 $2.28
Dec11 $1.94
Dec10 $1.76
Dec09 $2.23
Dec08 $3.14
Dec07 $3.13
Dec06 $2.80
Dec05 $2.00
Dec04 $1.44
Dec03 $1.03
Dec02 $0.93
Dec01 $0.94
Dec00 $1.13
Dec99 $1.05

Recommended Reading:

Other ModernGraham posts about the company

The 9 Best Stocks For Value Investors This Week – 7/18/15
Paccar Inc. Analysis – July 2015 Update $PCAR
27 Companies in the Spotlight This Week – 4/4/15
Paccar Inc. Quarterly Valuation – March 2015 $PCAR
17 Companies in the Spotlight This Week – 3/29/14

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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