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Here's Why You Should Retain Oshkosh (OSK) Stock for Now
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Oshkosh Corporation (OSK - Free Report) is set to benefit from a solid backlog, JBT's AeroTech business acquisition and ongoing support for defense programs. However, rising capital spending and high ramp-up costs remain a concern.
Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
Solid Backlog & Acquisitions to Aid
Frequent business wins and a comprehensive offering of innovative new products are driving Oshkosh’s order book. At the end of March 2024, the consolidated backlog rose to $15.37 billion (approximately $3.26 billion in Access Equipment, $6.43 billion in Defense and $5.68 billion in Vocational) compared with $14.97 billion in the year-ago period. A solid backlog provides enough visibility for the coming years.
Acquisitions have expanded the company’s range of offerings and added core capabilities. With the buyout of JBT's AeroTech business, which closed in August 2023, Oshkosh entered into the air transportation support market. The acquisition, which added aftermarket parts and services through a recurring revenue model should also bolster margins.
Furthermore, the acquisition of Hinowa, completed in January 2023, has broadened Oshkosh's manufacturing footprint in Europe, accelerated electrification efforts and opened up growth avenues in both core and adjacent markets. The acquisition of CartSeeker Technology, completed in March 2022, and a minority investment in Robotics promise to enhance OSK's long-term outlook.
Upbeat adjusted operating margin forecasts for Access & Vocational segments instill optimism. For the Access Equipment segment, adjusted operating margin is expected to be around 16.5%, up from the previous expectation of 15.5% on favorable sales mix. Adjusted operating margin for the Vocational segment is now expected to be around 12.75%, up from the previous estimate of 11.5%, thanks to improvement in price cost dynamics and better manufacturing efficiencies.
The firm’s balance sheet strength instills optimism. The total debt-to-capital ratio stands at 0.13 compared with the auto sector’s 0.57. Low leverage gives the company enough flexibility to tap into growth opportunities.
Investor-friendly moves also augur well. In 2023, it hiked its dividend by 12.2%, which marked the 10th consecutive year of double-digit percentage increase. In the first half of 2024, Oshkosh repurchased nearly 465,000 shares of common stock worth $54 million.
Oshkosh's Defense segment faces a pivotal year in 2024, marked by the transition from JLTV production to the Next Generation Delivery Vehicle (NGDV) for the U.S. Postal Service. With the NGDV rollout underway, the company anticipates increased vehicle production through 2025. Moreover, ongoing support for defense programs like FHTV, FMTV and the Stryker Medium Caliber Weapon System, along with involvement in the Robotic Combat Vehicle development, showcases Oshkosh's diverse technical expertise. The company expects to start receiving orders for low velocity air drop FMTV A2 cargo trucks in 2025. OSK’s efforts toward modernizing fleets and broadening capabilities bode well for the Defense segment's top-line growth.
Amid ongoing infrastructure investments, expansive mega projects and the resurgence of industrial onshoring initiatives, coupled with the elevated fleet age, the demand for aerial work platforms and telehandlers remains notably robust. In response to this sustained demand for innovative products, Oshkosh has decided to add capacity across its operations.
Noteworthy investments include Spartanburg, SC, dedicated to Next Generation Delivery Vehicles; Murphysboro, TN, focused on Volterra ZSL production; and Jefferson City, TN, earmarked for the augmentation of telehandler capacity. These expansion initiatives are poised to fortify Oshkosh's market presence, enabling accelerated growth and bolstered financial performance.
Encouraged by strong results in the first half of 2024, solid visibility of backlogs and favorable execution, OSK raised 2024 guidance. Oshkosh now expects consolidated 2024 adjusted operating income and adjusted EPS to be around $1.14 billion and $11.75, up from previous projections of $1.075 billion and $11.25, respectively. For the second quarter, Oshkosh expects sales to be up approximately 10% compared with the prior year.
Rising Capital Spending & High Ramp-Up Costs to Ail
Technology change requires Oshkosh to make massive investments and capital spending to build advanced products amid the changing dynamics of the industry. While investments in technology, including the development of battery electric products, will create opportunities for long-term growth, there will necessarily be some pressure on near-term results.
The company expects 2024 capex to remain at an elevated level of around $300 million amid higher spending on the NGDV facility in South Carolina as well as new product development initiatives. Even though NGDVs are expected to contribute very significantly to revenues and margins in 2025 and 2026, significant ramp-up costs associated with the production of NGDV will hurt profitability in the near term. These costs are likely to weigh on Oshkosh's Defense segment’s results.
The consensus estimate for DORM’s 2024 sales and earnings suggests year-over-year growth of 3.71% and 35.46%, respectively. EPS estimates for 2024 and 2025 have improved 51 cents and 37 cents, respectively, in the past 30 days.
The Zacks Consensus Estimate for BLBD’s 2024 sales and earnings suggests year-over-year growth of 17.58% and 215.89%, respectively. EPS estimates for 2024 and 2025 have improved 65 cents and 80 cents, respectively, in the past 30 days.
The Zacks Consensus Estimate for PLOW’s 2024 sales and earnings suggests year-over-year growth of 6.45% and 60.4%, respectively. EPS estimates for 2024 and 2025 have improved 15 cents and 2 cents, respectively, in the past 30 days.
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Here's Why You Should Retain Oshkosh (OSK) Stock for Now
Oshkosh Corporation (OSK - Free Report) is set to benefit from a solid backlog, JBT's AeroTech business acquisition and ongoing support for defense programs. However, rising capital spending and high ramp-up costs remain a concern.
Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
Solid Backlog & Acquisitions to Aid
Frequent business wins and a comprehensive offering of innovative new products are driving Oshkosh’s order book. At the end of March 2024, the consolidated backlog rose to $15.37 billion (approximately $3.26 billion in Access Equipment, $6.43 billion in Defense and $5.68 billion in Vocational) compared with $14.97 billion in the year-ago period. A solid backlog provides enough visibility for the coming years.
Acquisitions have expanded the company’s range of offerings and added core capabilities. With the buyout of JBT's AeroTech business, which closed in August 2023, Oshkosh entered into the air transportation support market. The acquisition, which added aftermarket parts and services through a recurring revenue model should also bolster margins.
Furthermore, the acquisition of Hinowa, completed in January 2023, has broadened Oshkosh's manufacturing footprint in Europe, accelerated electrification efforts and opened up growth avenues in both core and adjacent markets. The acquisition of CartSeeker Technology, completed in March 2022, and a minority investment in Robotics promise to enhance OSK's long-term outlook.
Upbeat adjusted operating margin forecasts for Access & Vocational segments instill optimism. For the Access Equipment segment, adjusted operating margin is expected to be around 16.5%, up from the previous expectation of 15.5% on favorable sales mix. Adjusted operating margin for the Vocational segment is now expected to be around 12.75%, up from the previous estimate of 11.5%, thanks to improvement in price cost dynamics and better manufacturing efficiencies.
The firm’s balance sheet strength instills optimism. The total debt-to-capital ratio stands at 0.13 compared with the auto sector’s 0.57. Low leverage gives the company enough flexibility to tap into growth opportunities.
Investor-friendly moves also augur well. In 2023, it hiked its dividend by 12.2%, which marked the 10th consecutive year of double-digit percentage increase. In the first half of 2024, Oshkosh repurchased nearly 465,000 shares of common stock worth $54 million.
Oshkosh's Defense segment faces a pivotal year in 2024, marked by the transition from JLTV production to the Next Generation Delivery Vehicle (NGDV) for the U.S. Postal Service. With the NGDV rollout underway, the company anticipates increased vehicle production through 2025. Moreover, ongoing support for defense programs like FHTV, FMTV and the Stryker Medium Caliber Weapon System, along with involvement in the Robotic Combat Vehicle development, showcases Oshkosh's diverse technical expertise. The company expects to start receiving orders for low velocity air drop FMTV A2 cargo trucks in 2025. OSK’s efforts toward modernizing fleets and broadening capabilities bode well for the Defense segment's top-line growth.
Amid ongoing infrastructure investments, expansive mega projects and the resurgence of industrial onshoring initiatives, coupled with the elevated fleet age, the demand for aerial work platforms and telehandlers remains notably robust. In response to this sustained demand for innovative products, Oshkosh has decided to add capacity across its operations.
Noteworthy investments include Spartanburg, SC, dedicated to Next Generation Delivery Vehicles; Murphysboro, TN, focused on Volterra ZSL production; and Jefferson City, TN, earmarked for the augmentation of telehandler capacity. These expansion initiatives are poised to fortify Oshkosh's market presence, enabling accelerated growth and bolstered financial performance.
Encouraged by strong results in the first half of 2024, solid visibility of backlogs and favorable execution, OSK raised 2024 guidance. Oshkosh now expects consolidated 2024 adjusted operating income and adjusted EPS to be around $1.14 billion and $11.75, up from previous projections of $1.075 billion and $11.25, respectively. For the second quarter, Oshkosh expects sales to be up approximately 10% compared with the prior year.
Rising Capital Spending & High Ramp-Up Costs to Ail
Technology change requires Oshkosh to make massive investments and capital spending to build advanced products amid the changing dynamics of the industry. While investments in technology, including the development of battery electric products, will create opportunities for long-term growth, there will necessarily be some pressure on near-term results.
The company expects 2024 capex to remain at an elevated level of around $300 million amid higher spending on the NGDV facility in South Carolina as well as new product development initiatives. Even though NGDVs are expected to contribute very significantly to revenues and margins in 2025 and 2026, significant ramp-up costs associated with the production of NGDV will hurt profitability in the near term. These costs are likely to weigh on Oshkosh's Defense segment’s results.
Stocks to Consider
Some better-ranked stocks in the auto space are Dorman Products, Inc. (DORM - Free Report) , Blue Bird Corporation (BLBD - Free Report) and Douglas Dynamics, Inc. (PLOW - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus estimate for DORM’s 2024 sales and earnings suggests year-over-year growth of 3.71% and 35.46%, respectively. EPS estimates for 2024 and 2025 have improved 51 cents and 37 cents, respectively, in the past 30 days.
The Zacks Consensus Estimate for BLBD’s 2024 sales and earnings suggests year-over-year growth of 17.58% and 215.89%, respectively. EPS estimates for 2024 and 2025 have improved 65 cents and 80 cents, respectively, in the past 30 days.
The Zacks Consensus Estimate for PLOW’s 2024 sales and earnings suggests year-over-year growth of 6.45% and 60.4%, respectively. EPS estimates for 2024 and 2025 have improved 15 cents and 2 cents, respectively, in the past 30 days.