Asset management giant Prudential has upgraded Paccar Inc. to "neutral weight" from "underweight" based on its belief that the truck OEM will exceed third-quarter earnings expectations.
According to CBS MarketWatch, analyst Andrew Casey raised his stock price target to $75 from $63, and his 2005 estimate to $6.75 a share from $5.75 due to increased expectations for North American truck production.
Martin Labbe, president of Martin Labbe Associates LLC, said that strong improvements in profitability are a result of steady truck sales and a growing backlog of truck orders.
Despite the production expectations Wall Street is putting on the OEM, Labbe said it has to strike a fine balance between boosting output and not producing so much that it outstrips backlogs.
"That's a good thing that their backlogs are growing. If they do keep pace with demand they'd be overproducing," Labbe said. "They have to be very cautious as to how they increase production and they have been very good about that."
In Paccar's second quarter, the OEM cited increasing tonnage, carrier profitability, low interest rates and pent-up demand for strong sales and earnings. Although the OEM has not cited carriers expanding capacity, Labbe said there's little doubt that today there are more trucks active on the road than ever.
"The economy is growing, more freight is out there, and more trucks are required, so therefore capacity has to increase," Labbe said.