Heavy truck orders surge in February
Despite the recent sell-off in Paccar (PCAR) shares, I remain bullish on the shares of this heavy and medium duty truck company given the February industry order data. Early today it was reported that North American orders for Class 8 semi-trucks jumped more than 76% in February as trucking companies are looking to address tight industry capacity that is leading to escalating freight costs. In the December quarter earnings season, we’ve heard many a company report rising freight costs would take a bite out of profits and bottom line earnings. It was that pain point that prompted me to add PCAR shares to the Tematica Investing Select List, and the February data points to higher production levels and better financial results ahead for Paccar.
Preliminary orders in the United States, Canada, and Mexico for the heavy-duty trucks, better known in the industry as Class 8 trucks, hit 40,200 trucks, up from 22,886 in February 2017 according to FTR. The quick perspective is this is the second consecutive month in some time that orders exceeded 40,000 units. As I noted when we added PCAR shares to the Select List, heavy truck orders had been on the rise in 4Q 2017. That led full-year 2017 orders for Class 8 trucks to come in at 290,000 units compared with 164,000 in 2016. I suspect some attributed the sharp rise primarily to pull forward ahead of the federal mandate for the electronic logs (ELDs) from paper logs, which went into effect in December, rather than the truck shortage.
With truck orders continuing to surge in 2018, investors have a clearer view of underlying truck demand and it continues to look bright.
- We continue to have a Buy rating on Paccar (PCAR) shares and our price target for this Economic Acceleration/Deceleration position on the Select List remains $85.
