Bear Stearns said that it believes investors “greatly underestimate the magnitude” of the 2005-2006 Class 8 pre-buy.
“The average age of the public TL fleet has declined from roughly 28 months in 2002 to 17 months at year-end 2005,” Bear Stearns said in a release. “Conservatively, we project it declining to 14 months by year-end 2006. While the 2006 ‘precipice’ in orders is turning out to be more gradual than expected, directionally it doesn't change our outlook on 2006 and 2007.
“We’d continue to lighten up in truck equipment. Monthly orders drive the stocks, and our best sense is that Class 8 orders are likely to continue to weaken as the year progresses. As a result, we think it'll be increasingly difficult for the truck equipment names to outperform - particularly as we enter the typical order season in September when we expect order intake to still be weak. We think the market will be even more disappointed when Class 8 orders don't rebound later this year.”