Oshkosh is a company I’ve had on my radar for some time.
The business is a Machinery/Heavy truck company, with massive customer exposure to public segments, such as governments.
Such businesses make for very appealing possibilities at the right price.
Read my article to find out my current thesis on Oshkosh.
viper-zero/iStock Editorial via Getty Images Oshkosh (NYSE: OSK ) is a company I opened my eyes for around a year ago. Unfortunately, I did not buy the company then, as there were more appealing companies to invest in. I expected Oshkosh to trade in a volatile manner, and it has.
In this article, I’ll take a look at Oshkosh and establish an investment thesis as well as price targets for the company. (Source: Oshkosh) Oshkosh – What Does the Company Do?
When thinking about Oshkosh, I often think about Caterpillar ( CAT ). Both companies are active in the segment of heavy-duty vehicles, and neither company is your “standard” manufacturer of these vehicles. They’re both extremely specialized, emphasizing customized solutions for very specific segments.
The company operates under several brands, most of them very well-known in their respective fields, but completely unknown to people outside of these fields. (Source: Oshkosh)
The company’s operations are split into the following segments. Access Equipment , focusing on telehandlers, boom lifts, lifting equipment and other similar products. The company operates, amongst others, under the brands of JLG and SkyTrak brands.
Defense , focusing on the development and construction of defense vehicles. The company is a global leader in the design of best-in-class military vehicles, but also delivery vehicles.
Fire & Emergency, focusing on the construction of custom fire engines.
Commercial, which holds machines focused on concrete, refuse, and similar segments.
The company has a 100+ year history and was the manufacturer of the first severe-duty four-wheel-drive truck – and the first truck produced, known as “Old Betsy”, is still owned and operated by the company. (Source: Motor Trend)
Things have advanced since then, of course, and today, the company manufactures a wide variety of machines, trucks, and specialized equipment, handling everything from snow and ice, to fire. (Source: Oshkosh)
It’s fair to consider the Oshkosh corporation dependent on a few things for its income – among them military/defense budgets and orders, building trends, and state/municipal trends for replacing older vehicles. In terms of segment sizes, the Access equipment is the biggest segment, followed by the Defense segment.
The company has appealing overall fundamentals, carries an investment-grade credit rating, and a market cap of nearly $8B at current valuation and results. Company debt is extremely limited at 20% long-term debt/cap, and the company’s dividend coverage is stellar, at less than 30% payout ratio, bringing it to one of the lowest in the industry.
Oshkosh investors have done pretty well in the long term, beating the S&P 500 over the past 20 years with an 11.5% annual RoR, or 734% total RoR, though the road has been anything but smooth. The company’s exposure to various industries and cyclicalities have made sure that results have been up and down – and during a period of no less than 5 years, the company elected not to pay a dividend. The company’s dividend track record is, at this point, no older than 8 years, which bears mentioning when comparing this to other companies.
To my mind, the company’s positive qualities and segments make up for this lack, and I consider the company much more appealing today than back then – but the volatility isn’t that far in the past.It also bears mentioning that Oshkosh will be subject to SCM constraints like other companies, meaning the company may be limited to deliver results due to factors outside of its control. With the expectations for SCM problems well into 2022, this also needs to be considered prior to investing here.However, there are many reasons why Oshkosh is an appealing business, among them: Tailwinds such as aged fleets of vehicles and trucks, the now-passed infrastructure bill, construction boom, and others. Attractive end markets, with multi-year growth cycles, defense programs with proven wins for the company, wins with the postal service, fire trucks, and refuse collection, all of these specialized and attractive markets. The company focuses on technology, with development in electrification, analytics, and digital, as well as intelligent product. Company fundamentals & results, with strong cash flows, good capital allocation (since the reinstated dividends), and a good outlook for the future. Let’s look at the most recent set of results to see how things look for this […]