PACCAR: Tech Shift Can Prove Lucrative

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Summary

PACCAR (PCAR) is one of the leading truck manufacturers in the world, along with Volvo (OTCPK:VOLAF) and Volkswagen (OTCPK:VLKAF), and they have been working on developing both low-emission, electric-powered trucking solutions and autonomous technologies which can revolutionize the industry.

There are major hurdles in the pursuit of fully autonomous trucks and vehicles, but in the not-so-distant future, we may be starting to see autonomous trucks and other vehicles on major highway stretches being taken over by human drivers once they reach cities or other urban areas. Even though companies like Tesla (TSLA) are getting the majority of publicity for these types of technological developments, PACCAR is working hard to make sure they become a market share leader in the new era of transportation.

Even though trucking sales in the US and Canada are set to decline in 2020 compared to 2018 and 2019, the company is well-positioned heading into the new year, even with lower overall sales and profits expected, to continue and invest in these new technologies to boost sales in the coming decade as cheaper electricity and a more comprehensive charging network is established.

Industry As A Whole

The trucking industry as a whole was plagued by a slowdown in global manufacturing and the rise in faster and more affordable air freight solutions for cross-national transportation, causing a lower order flow. Since the global financial crisis, however, the industry has rebounded nicely and is moving towards a more efficient manufacturing process and new technological improvements which warrant more frequent upgrade cycles from the leading transportation players in the United States and abroad.

The global trucking industry is set to grow at a CAGR of 8% through 2022, providing for plenty of opportunities within the industry for major market share players. However, companies have yet to fully introduce their new technological solutions for lower emissions, including electric vehicles and their newest autonomous technologies which can ultimately lead to lower costs related to personnel and insurance.

New Trucking Technologies Forthcoming

At CES earlier this year, the company showcased 3 new initiatives for their upcoming electric and autonomous trucks. The first was a Level 4 autuonois Kenworth T680, the second is an electric Peterbilt Model 520EV and the third is an electric Kenworth K270E. These electric models are being designed primarily for local distribution in larger cities with charging ports but also for longer range distribution solutions around major hubs.

Electric-powered trucking solutions can become a major source of new business for the company as prices of electricity continue to fall with the implementation of statewide alternative energy boosts and local switches to natural gas, wind and solar. A company with a set distribution line within a given State can switch over to these solutions and save a lot of money having or building charging stations along their routes.

As I've written about Blink Charging (BLNK) several times, there are more and more companies out there who are investing in charging stations along major highways and in stores like Walmart (WMT) in major hubs, which will ultimately provide a source of charging for companies with longer-haul transportation routes in the United State and globally. Global investment in these technologies will also provide the company and industry as a whole with a much-needed boost with orders for electric-powered trucks and for autonomous trucks in countries with less stringent regulatory frameworks.

Solid Balance Sheet Sustaining Growth

The company expects truck sales in the US and Canada to fall from 320,000 in 2019 to 260,000 in 2020, causing a downward expectation for sales and income for 2020 compared to the previous 2 years. Even so, the company is well-positioned with a record $5.2 billion in cash and short-term investments to continue and invest in new technologies and keep the order flow going out to customers as they come in.

The company handles its debt in a smart way and invests its cash to lower its interest expense from fixed-rate debt offerings to the sum of just over $10 billion. The company has $1.15 billion in inventory in various segments and is positioned well heading into the 2020 business cycle.

For 2020, analysts expect the company to report $20.12 billion in sales for 2020, followed by $20.6 billion in 2021, lower than their 2019 sales of over $24 billion. On the EPS side of things, analysts expect the company to report a rather stagnant $5.36 and $5.46 for 2020 and 2021, respectively. It is noteworthy that in the most recent quarter reporting on January 28th, the company exceeded expectations on both fronts and we might end up seeing a stronger long haul trucking market than what was initially expected.

Investment Conclusion

There is much to be optimistic for in the company's year ahead. Electric-powered trucking solutions are set to become a more viable mode of transporting goods in the upcoming year as battery solutions and capacities improve, charging networks expand and the global business community continues to seek opportunities to lower overall costs with cheaper operating expenses.

PACCAR is well-positioned as it continues to invest heavily in these new technologies and even as they face a tough year ahead with lower overall truck sales expected, the long-term benefit the company should get from the shift toward their newest product should ultimately lead to a strong year ahead. I remain bullish on the company's 2020.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Opinion, not investment advice.