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Bank of America/Merrill Lynch Upgrades Oshkosh to a ‘Buy’

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Price movement

Oshkosh (OSK) has a market cap of $2.8 billion. It rose by 2.3% and closed at $54.54 per share on August 18, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were 2.2%, 14.9%, and 41.7%, respectively, on the same day. Oshkosh is trading 4.2% above its 20-day moving average, 11.1% above its 50-day moving average, and 31.0% above its 200-day moving average.

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Related ETFs and peers

The PowerShares Aerospace & Defense Portfolio (PPA) invests 1.3% of its holdings in Oshkosh. PPA tracks a market-cap-weighted index of US-listed stocks involved in the defense, military, homeland security, and space industries. PPA’s YTD price movement was 10.9% on August 18.

The iShares Morningstar Small Value ETF (JKL) invests 0.71% of its holdings in Oshkosh. JKL tracks a market-cap-weighted index of US small cap value stocks. The index stocks from the 90th to the 97th percentile of the market-cap spectrum using fundamental factors.

The market caps of Oshkosh’s peers are as follows:

  • Terex (TEX) – $2.6 billion
  • Caterpillar (CAT) – $48.9 billion

Oshkosh’s rating

Bank of America/Merrill Lynch upgraded Oshkosh’s rating to a “buy” from “neutral.”

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Performance in fiscal 3Q16

OshKosh reported fiscal 3Q16 net sales of $1.7 billion—a rise of 6.2% compared to net sales of $1.6 billion in fiscal 3Q15. Sales in its access equipment, defense, and fire and emergency segments rose by 2.1%, 36.1%, and 24.4%, respectively. Sales in its commercial segment fell by 2.1% in fiscal 3Q16—compared to fiscal 3Q15.

The company’s gross profit margin and operating income rose by 2.2% and 7.5%, respectively, in fiscal 3Q16—compared to the same period last year.

Its net income fell to $84.2 million in fiscal 3Q16—compared to $89.7 million in fiscal 3Q15. It reported EPS (earnings per share) of $1.13 in fiscal 3Q16 and 3Q15.

OshKosh’s cash and cash equivalents rose by 6.1%, and its inventories fell by 3.6% in fiscal 3Q16—compared to fiscal 4Q15. Its current ratio fell to 1.6x and its DE (debt-to-equity) ratio rose to 1.5x in fiscal 3Q16—compared to a current ratio and DE ratio of 1.7x and 1.4x, respectively, in fiscal 4Q15.

Projections

The company made the following projections for 2016:

  • net sales of $6.0 billion–$6.1 billion
  • EPS of $2.60–$2.80
  • operating income of $340 million–$360 million
  • free cash flow of ~$400 million

These projections reflect higher defense and fire and emergency segment sales and higher operating income. Sales will be partially offset by higher corporate costs, a higher effective income tax rate, and lower access equipment segment operating income.

Next, we’ll take a look at Domtar (UFS).

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