PCAR 3Q23: Looking toppy (incl. Excel workbook)
The company seems to have reached a cyclical top which does not appear to be priced in sufficiently. I see about 40% downside potential with limited upside risk.
Quick announcement: If you ever need professional valuation services for litigation, taxation, financial reporting or deal purposes, please consider reaching out to me. This can for example be applicable to matrimonial disputes, estate planning, legal entity restructurings or business divestitures/acquisitions. Before I started working on Fallacy Alarm full-time, I have prepared business valuations professionally for more than a decade and have worked on hundreds of valuation subjects during that time. I am still serving entrepreneurs, tax advisors and family businesses occasionally with my expertise. Happy to help you as well.
If you are looking for a cyclical company that is proving that the rumors about resilient economic growth are true, you can find it by looking at PACCAR PCAR 0.00%↑. They released their 3Q23 earnings yesterday and they are blowing it out of the park with $8.7bn in revenues for the quarter (+23% year-over-year) and $2.34 EPS (+59% year-over-year). For 9M23 revenues are up 26% and EPS is up 52% vs. prior year. The stock is up 30% this year and 60% from summer 2022.
‘Sell the news’ is an important trading principle. I believe this one is ripe for a correction. In this article, I will quantify the bear case. I have also attached my Excel workbook at the end.
The valuation of a truck manufacturer is simple: volume times price times margin times multiple. Let’s look at each of those to build a valuation opinion.