Machinery Stocks

Paccar Inc Valuation – May 2018 $PCAR

Company Profile (excerpt from Reuters): PACCAR Inc (PACCAR), incorporated on November 19, 1971, is a technology company. The Company’s segments include Truck, Parts and Financial Services. 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. The Financial Services segment includes finance and leasing products and services provided to customers and dealers. Its Other business includes the manufacturing and marketing of industrial winches. The Company operates in Australia and Brazil and sells trucks and parts to customers in Asia, Africa, the Middle East and South America.

PCAR Chart

PCAR data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PCAR – May 2018

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 $22,234,207,124 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.45 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 159.28% Pass
6. Moderate PEmg Ratio PEmg < 20 15.17 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.61 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 2.45 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.60 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

EPSmg $4.16
MG Growth Estimate 4.26%
MG Value $70.81
Opinion Fairly Valued
MG Grade B-
MG Value based on 3% Growth $60.35
MG Value based on 0% Growth $35.38
Market Implied Growth Rate 3.34%
Current Price $63.15
% of Intrinsic Value 89.18%

PACCAR Inc qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $3.24 in 2014 to an estimated $4.16 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 3.34% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into PACCAR Inc revealed the company was trading above its Graham Number of $51.89. The company pays a dividend of $0.99 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 15.17, which was below the industry average of 28.03, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $3.89.

PACCAR Inc performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $3.89
Graham Number $51.89
PEmg 15.17
Current Ratio 2.45
PB Ratio 2.61
Current Dividend $0.99
Dividend Yield 1.57%
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $16,588,200,000
Total Current Liabilities $6,764,100,000
Long-Term Debt $5,895,800,000
Total Assets $23,781,700,000
Intangible Assets $0
Total Liabilities $15,214,400,000
Shares Outstanding (Diluted Average) 353,500,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.23
Dec2017 $4.75
Dec2016 $1.48
Dec2015 $4.51
Dec2014 $3.82
Dec2013 $3.30
Dec2012 $3.12
Dec2011 $2.86
Dec2010 $1.25
Dec2009 $0.31
Dec2008 $2.78
Dec2007 $3.29
Dec2006 $3.97
Dec2005 $2.91
Dec2004 $2.29
Dec2003 $1.33
Dec2002 $0.95
Dec2001 $0.44
Dec2000 $1.13
Dec1999 $1.46
Dec1998 $1.05

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.16
Dec2017 $3.61
Dec2016 $3.11
Dec2015 $3.79
Dec2014 $3.24
Dec2013 $2.69
Dec2012 $2.28
Dec2011 $1.94
Dec2010 $1.76
Dec2009 $2.23
Dec2008 $3.14
Dec2007 $3.13
Dec2006 $2.80
Dec2005 $2.00
Dec2004 $1.44
Dec2003 $1.03
Dec2002 $0.93

Recommended Reading:

Other ModernGraham posts about the company

PACCAR Inc Valuation – February 2017 $PCAR
15 Best Undervalued Stocks of the Week – 8/20/16
PACCAR Inc Valuation – August 2016 $PCAR
10 Most Undervalued Companies for the Defensive Investor – July 2016
10 Most Undervalued Companies for the Defensive Investor – June 2016

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Disclaimer:

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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