On Dec 29, 2015, Zacks Investment Research downgraded PACCAR Inc. PCAR to a Zacks Rank #5 (Strong Sell), placing it among the bottom 5% of all stocks ranked by Zacks.
Why the Downgrade?
PACCAR’s revenues fell 1.6% year over year to $4.85 billion in third-quarter 2015, but exceeded the Zacks Consensus Estimate of $4.78 billion. Revenues of the Truck, Parts and Other segment as well as the Financial Services segment deteriorated in the quarter.
PACCAR, the third-largest manufacturer of heavy-duty trucks in the world, is likely to be affected by the declining heavy-duty truck industry sales in South America. PACCAR expects heavy-duty truck demand in South America to range around 70,000–80,000 units in 2015, down from 129,000 units sold in 2014. Demand is expected to be around the 2015 level next year as well.
Although Class 8 industry retail sales for the U.S. and Canada are anticipated to rise to 275,000–285,000 units in 2015, the figure is expected to drop to 240,000–270,000 units in 2016.
Moreover, PACCAR’s earnings outlook does not seem promising. Earnings per share are expected to decline 5.06% year over year in fourth-quarter 2015, while the figure is projected to fall 4.4% in the first quarter of 2016.
In fact, analysts do not seem too hopeful about PACCAR’s performance in 2016. Over the past month, the Bellevue, WA-based company has witnessed 7 downward revisions in its 2016 earnings estimates. This resulted in a 3.6% fall in the Zacks Consensus Estimate to $4.26 per share, which implies a 7.34% decline in earnings over 2015.
Stocks to Consider
Better-ranked automobile stocks include General Motors Company GM, Fox Factory Holding Corp FOXF and O'Reilly Automotive Inc. ORLY. All these stocks carry a Zacks Rank #2 (Buy).
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