PACCAR Inc. (PCAR) Bloomfield Hills, Mich. and Tata Motors Limited (TTM) are budding players in the international truck manufacturing space. PCAR designs and manufactures high-quality light-, medium- and heavy-duty trucks, advanced diesel engines, and related aftermarket parts. TTM is an India-based multinational automotive corporation engaged mainly in producing various types of commercial and passenger vehicles. Both companies provide information technology and vehicle financing services.
Cheaper borrowing rates and growing demand for products are incentivizing industries to ramp up production amid the easing of pandemic restrictions, thus creating a high demand for raw materials worldwide. This, in turn, is fueling the demand for heavy-duty trucks for interstate cargo transportation. The heavy-duty trucks market is expected to grow at a 7.3% CAGR to hit $280.54 billion by 2026. Based on their efficient truck portfolios and finance services, both PCAR and TTM are likely to benefit from the industry tailwinds.
But while PCAR lost 5.5% in price over the past three months, TTM surged 3.6%. In terms of their past six months’ performance, TTM is a clear winner with 1.6% gains versus PCAR’s negative returns. But, which of these stocks is a better pick now? Let’s find out.
Click here to check out our Automotive Industry Report for 2021
Latest Movements
On April 6, PCAR announced a five-year supply agreement with Romeo Power, Inc. (RMO), a California-based leading battery technology company, to purchase RMO’s battery packs and battery management software for PCAR’s heavy-duty Peterbilt 579EV vehicles and Peterbilt 520EV refuse trucks. The partnership should enhance PCAR’s zero-emissions product offerings and improve its customers’ operational efficiency.
PCAR and Aurora, a start-up that is developing hardware and software to enable vehicles to drive autonomously, signed a strategic agreement on January 19 to develop, test, and commercialize autonomous-enabled Peterbilt and Kenworth trucks. PCAR expects its autonomous vehicle platform with Aurora’s Aurora Driver self-driving technology will enhance its customers’ safety and operational efficiency and generate good sales in the next several years.
On July 15, 2021, TTM partnered with the Garden Reach Shipbuilders & Engineers Ltd. (GRSE), based in Kolkata, to deploy 14 XPRES T EVs as a part of its contract with Energy Efficiency Services Limited (EESL).
On July 14, TTM launched a new brand, ‘XPRES,’ exclusively for fleet customers. ‘XPRES-T’ EV, an Electric Sedan, is the first vehicle under the XPRES brand that will be launched shortly. Targeted at mobility services, corporate and government fleet customers, the XPRES-T EV offers an optimal battery size, captive fast charging solution, which will ensure very low cost of ownership in addition to safety and passenger comfort, making it a comprehensive and attractive proposition for fleet owners and operators.
Recent Financial Results
PCAR’s total sales and revenues for its fiscal first quarter ended March 31, 2021, increased 13.2% year-over-year to $5.85 billion. The company’s pre-tax profit came in at $607.30 million, which represents a 31.4% year-over-year improvement. PCAR’s net income has been reported at $470.10 million for the quarter, up 30.8% from the prior-year period. Its EPS increased 31.1% year-over-year to $1.35. The company had $3.32 billion in cash and cash equivalents as of March 31, 2021.
For its fiscal fourth quarter ended March 31, 2021, TTM’s total revenue from operations increased 106% year-over-year to ₹88.63 KCr ($11.91 billion). The company’s pre-tax loss came in at ₹7.64 KCr ($1.03 billion), down 17.9% from the prior-year period. TTM’s total comprehensive loss has been reported at ₹4.48 KCr ($601.79 million), which represents a 22.2% rise from the year-ago period. Its loss per share decreased 26.4% year-over-year to ₹20.24 ($14.92). The company had ₹2.37 KCr ($320 million) in cash and cash equivalents as of March 31, 2021.
Past and Expected Financial Performance
PCAR’s tangible book value and total assets have grown at CAGRs of 7.8% and 6.2%, respectively, over the past three years. Analysts expect PCAR’s revenue to increase 38.2% year-over-year in the current quarter (ending September 30, 2021), 34.7% in the current year, and 11.3% next year.
In comparison, TTM’s tangible book and total assets have grown at CAGRs of 15% and 1.2%, respectively, over the past three years. Analysts expect TTM’s revenue to increase 556.7% year-over-year in the current quarter (ending September 30, 2021) but decline 74.5% in the current year and then increase 24.5% next year.
Profitability
TTM's trailing-12-month revenue is 1.8 times PCAR’s. However, PCAR is more profitable, with a 9.2% EBIT margin versus TTM’s 3.6%.
Also, PCAR’s net income margin and ROE of 7.3% and 13.9%, respectively, compare favorably with TTM’s negative values.
Valuation
In terms of forward EV/Sales, TTM’s is currently trading at 2.91x, which is 84.2% higher than PCAR’s 1.58x.
Also, in terms of forward EV/EBITDA, TTM’s 43.95x is 218.2% higher than PCAR’s 13.81x.
POWR Ratings
While TTM has an overall C grade, which translates to Neutral in our proprietary POWR Ratings system, PCAR has an overall B grade, which equates to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.
Both the stocks have a C grade for Quality, which is in sync with their slightly higher-than-industry profit margins. PCAR’s 9.2% trailing-12-month EBIT margin is 10.9% higher than the 8.3% industry average. TTM has a 41.9% trailing-12-month gross profit margin, which is 20.1% higher than the 34.9% industry average.
In terms of Sentiment, PCAR has been graded a B because analysts expect the company’s revenue to grow 34.7% year-over-year in the current year. In comparison, TTM’s D grade for Sentiment reflects analysts’ expectation that its revenue will decline 74.5% in the current year.
Of the 57 stocks in the Auto & Vehicle Manufacturers industry, TTM is ranked #25, while PCAR is ranked #13.
Beyond what we’ve stated above, our POWR Ratings system has also rated PCAR and TTM for Growth, Stability, Momentum, and Value. Get all TTM ratings here. Also, click here to see the additional POWR Ratings for PCAR.
Click here to check out our Automotive Industry Report for 2021
The Winner
The rising demand in the transportation of raw materials should enable both PCAR and TTM to benefit. However, higher profit margins and lower valuation make PCAR a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Auto & Vehicle Manufacturers industry.
PCAR shares were trading at $87.60 per share on Friday afternoon, up $0.46 (+0.53%). Year-to-date, PCAR has gained 2.23%, versus a 18.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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