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RBC Capital Upgrades OshKosh Corporation to ‘Outperform’

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Price movement

OshKosh Corporation (OSK) has a market capitalization of $3.1 billion. It rose by 2.7% to close at $55.09 per share on July 29, 2016.

The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 12.5%, 18.7%, and 42.6%, respectively, on the same day. OSK is trading 14.0% above its 20-day moving average, 17.1% above its 50-day moving average, and 35.1% above its 200-day moving average.

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Related ETFs and peers

The PowerShares Aerospace & Defense ETF (PPA) invests 1.3% 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 9.2% on July 29.

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

The market capitalizations of OshKosh’s competitors are as follows:

  • Terex Corporation (TEX) — $2.6 billion
  • Caterpillar (CAT) — $48.7 billion

OshKosh’s rating

RBC Capital Markets has upgraded OshKosh Corporation’s rating to an “outperform” from a “sector perform.” It has also raised the stock’s price target to $63.0 from $46.0 per share.

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Performance of OshKosh 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 prior year’s period.

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 debt-to-equity ratio rose to 1.5x in fiscal 3Q16 compared to a current ratio and debt-to-equity ratio of 1.7x and 1.4x, respectively, in fiscal 4Q15.

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Quarterly dividend

OshKosh has declared a quarterly cash dividend of $0.19 per share on its common stock. The dividend will be paid on August 29, 2016, to shareholders of record as of August 15, 2016.

Projections

The company has made the following projections for 2016:

  • net sales in the range of $6.0 billion to $6.1 billion
  • EPS in the range of $2.60–$2.80
  • operating income in the range 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 Pinnacle Foods (PF).

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