Which Truck Manufacturer is a Better Buy?
PACCAR Inc. (PCAR) Bloomfield Hills, Michigan and Tata Motors Limited (TTM) are budding players in the international truck manufacturing space. PCAR designs and manufactures high quality light, medium and heavy trucks, advanced diesel engines and related spare parts. TTM is an India-based multinational automobile company primarily engaged in the production of various types of commercial and passenger vehicles. Both companies provide information technology and vehicle finance services.
Cheaper borrowing rates and growing demand for products are prompting industries to increase production as pandemic restrictions are eased, creating high demand for raw materials around the world. This, in turn, is fueling the demand for heavy trucks for interstate freight transportation. The heavy-duty truck market is expected to grow at a CAGR of 7.3% to reach $ 280.54 billion by 2026. Based on their efficient truck portfolios and financial services, PCAR and TTM are expected to benefit from the winds favorable industry.
But while PCAR has lost 5.5% in price over the past three months, TTM has jumped 3.6%. In terms of performance over the past six months, TTM is a clear winner with 1.6% gains over negative PCAR returns. But, which of these titles is the best choice now? Let’s find out.
Click here to view our Automotive Industry Report for 2021
On April 6, PCAR announced a five-year supply agreement with Romeo Power, Inc. (RMO), a leading California-based battery technology company, for the purchase of battery packs and software for RMO battery management for Peterbilt 579EV Heavy Duty Vehicles and 520EV Garbage Trucks. The partnership is expected to strengthen PCAR’s zero-emission product offerings and improve the operational efficiency of its customers.
PCAR and Aurora, a start-up that develops hardware and software to enable vehicles to drive autonomously, signed a strategic agreement on January 19 to develop, test and market autonomous Peterbilt and Kenworth trucks. PCAR expects its autonomous vehicle platform with Aurora Driver autonomous driving technology from Aurora to improve the safety and operational efficiency of its customers and generate good sales over the next few years.
On July 15, 2021, TTM partnered with Garden Reach Shipbuilders & Engineers Ltd. (GRSE), based in Calcutta, to deploy 14 XPRES T EV under its contract with Energy Efficiency Services Limited (EESL).
On July 14, TTM launched a new brand, “XPRES”, exclusively for fleet customers. ‘XPRES-T’ EV, an electric sedan, is the first vehicle under the XPRES brand to be launched shortly. Intended for mobility services, businesses and government fleet customers, the XPRES-T EV offers optimal battery size, a captive fast charging solution, which will ensure a very low cost of ownership in addition to safety and convenience. of passengers, which makes it a complete and attractive proposition. for fleet owners and operators.
Recent financial results
PCAR’s total sales and revenue for its first fiscal quarter ended March 31, 2021, increased 13.2% year-over-year to $ 5.85 billion. The company’s pre-tax profit was $ 607.30 million, representing a 31.4% year-over-year improvement. PCAR’s net income was reported at $ 470.10 million for the quarter, up 30.8% from the prior year period. Its EPS increased 31.1% year-on-year to $ 1.35. The company had $ 3.32 billion in cash and cash equivalents as of March 31, 2021.
For its fiscal fourth quarter ended March 31, 2021, TTM’s total operating revenue increased 106% year-on-year to KCr88.63 ($ 11.91 billion). The company’s pre-tax loss amounted to KCr 7.64 ($ 1.03 billion), down 17.9% from the previous year period. TTM’s total overall loss was reported at ₹ 4.48 KCr ($ 601.79 million), which is a 22.2% increase over the previous year. Its loss per share fell 26.4% year-on-year to ₹ 20.24 ($ 14.92). The company had 2.37 KCr ($ 320 million) in cash and cash equivalents as of March 31, 2021.
Past and expected financial performance
PCAR’s tangible book value and total assets have grown at CAGRs of 7.8% and 6.2%, respectively, over the past three years. Analysts expect PCAR’s revenue to grow 38.2% year-on-year in the current quarter (ending September 30, 2021), 34.7% for the current year, and 11 , 3% next year.
In comparison, TTM’s tangible and total assets have grown at CAGRs of 15% and 1.2%, respectively, over the past three years. Analysts expect TTM’s revenue to grow 556.7% year-on-year in the current quarter (ending September 30, 2021), but decline 74.5% during the year in prices, then increase by 24.5% next year.
TTM’s turnover for the last 12 months is 1.8 times that of PCAR. However, PCAR is more profitable, with an EBIT margin of 9.2% versus 3.6% for TTM.
In addition, PCAR’s net profit margin and ROE of 7.3% and 13.9%, respectively, compare favorably to negative TTM values.
In terms of EV / futures sales, the TTM is currently trading at 2.91x, which is 84.2% higher than PCAR’s 1.58x.
In addition, in terms of EV / EBITDA at the end of the day, TTM’s 43.95x is 218.2% higher than PCAR’s 13.81x.
While TTM has an overall C rating, which translates to Neutral in our proprietary POWR rating system, PCAR has an overall B rating, which equates to Buy. POWR scores are calculated taking into account 118 different factors, each weighted to an optimal degree.
Both stocks have a C rating for quality, which is in line with their marginally higher profit margins than the industry. PCAR’s 12-month rolling EBIT margin of 9.2% is 10.9% higher than the industry average of 8.3%. TTM has a gross profit margin of 41.9% over the past 12 months, which is 20.1% above the industry average of 34.9%.
In terms of sentiment, PCAR was ranked B as analysts expect the company’s revenue to grow 34.7% year-over-year in the current year. By comparison, TTM’s D rating for Sentiment reflects analysts’ expectations that its revenue will decline by 74.5% in the current year.
Of the 57 stocks in the auto and vehicle manufacturing industry, TTM is ranked No.25, while PCAR is ranked No.13.
Beyond what we stated above, our POWR rating system also rated PCAR and TTM for growth, stability, momentum and value. Get all TTM ratings here. Also click here to view additional POWR ratings for PCAR.
Click here to view our Automotive Industry Report for 2021
The growing demand for the transport of raw materials should allow both PCAR and TTM to benefit. However, higher profit margins and lower valuation make PCAR a better buy here.
Our research shows that the odds of success increase when betting on stocks with an overall buy or strong buy POWR rating. Click here for top rated stocks from the automotive and automotive industry.
PCAR stock was trading at $ 87.60 per share on Friday afternoon, up $ 0.46 (+ 0.53%). Year-to-date, PCAR has gained 2.23%, compared to an 18.39% increase in the benchmark S&P 500 over the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a particular interest in finding market inefficiencies. She is passionate about educating investors so that they can be successful on the stock market. Following…