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Drexel Hamilton Downgrades Oshkosh’s Rating to “Hold”

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Price movement of Oshkosh

Oshkosh Corporation (OSK), which has a market cap of $2.3 billion, fell by 4.4% to close at $31.47 per share on February 1, 2016. The company’s weekly, monthly, and YTD (year-to-date) stock price movements came in at -4.0%, -19.8%, and -19.4%, respectively.

Technically, the stock broke support on that day and was trading below all moving day averages. OSK was also trading 9.1% below its 20-day moving average, 18.2% below its 50-day moving average, and 24.9% below its 200-day moving average.

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ETFs and competitors

The PowerShares Aerospace & Defense Portfolio (PPA) invests 1.0% of its holdings in Oshkosh. The ETF tracks a market-cap-weighted index of US-listed stocks involved in the defense, military, homeland security, and space industries. The YTD price movement of PPA was -6.5% as of January 29, 2016.

The iShares Morningstar Small Value ETF (JKL) invests 0.64% of its holdings in Oshkosh. The ETF tracks a market-cap-weighted index of US small cap value stocks. The index follows stocks from the 90th to the 97th percentile of the market-cap spectrum, using fundamental factors.

The market cap of Oshkosh’s competitors are as follows:

  • Terex Corporation (TEX)—$2.4 billion
  • Caterpillar (CAT)—$36.5 billion

Oshkosh’s downgrade and fiscal 1Q16 performance

Drexel Hamilton has downgraded Oshkosh from “buy” to “hold” due to the company’s fall in performance in fiscal 1Q16. Oshkosh reported fiscal 1Q16 net sales of almost $1.3 billion, down 7.5% compared to net sales of nearly $1.4 billion in fiscal 1Q15. The company’s cost of sales as a percentage of net sales rose by 2.4%, and its gross income fell by 20.4% in fiscal 1Q16 over fiscal 1Q15.

Its net income and EPS (earnings per share) fell to $14.6 million and $0.19, respectively, in fiscal 1Q16, compared to $34.6 million and $0.43, respectively, in fiscal 1Q15.

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Cash, cash equivalents, and dividends

Meanwhile, Oshkosh’s cash and cash equivalents and its inventories fell by 21.4% and 0.48%, respectively, in fiscal 1Q16 compared to fiscal 4Q15. Its current ratio fell to 1.65, and its long-term debt-to-equity ratio rose to 0.47 in fiscal 1Q16, compared to a current ratio and a long-term debt-to-equity ratio of 1.66 and 0.45, respectively, in fiscal 4Q14.

The company has declared a quarterly cash dividend of $0.19 per share on its common stock. Also, it purchased 2.5 million shares with cash of $100.1 million in fiscal 1Q16 and 4.9 million shares worth of $200.4 million in fiscal 2015.

The PE (price-to-earnings) and PBV (price-to-book value) ratios of Oshkosh were 11.8x and 1.3x, respectively, as of February 1, 2016.

Projection for Oshkosh

Oshkosh expects its fiscal 2016 net sales to be in the range of $5.7 billion–$6.0 billion while it expects its EPS to be in the range of $2.20–$2.60. The company projects that in fiscal 2Q16, its EPS will be lower than the fiscal 2Q15 as a result of lower equipment segment sales, telehandler sales, and year-over-year production levels in the access equipment segment.

Now let’s look at the outliers in consumer discretionary and consumer staples as of February 1, 2016.

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