PCAR Consolidation Breakout

PCAR is an oyster sitting among crap shells: a pure play on the truck manufacturing segment that goes for less than 12 x EPS, attractive when you look at how the firm has grown EPS 45% over the last 3 yrs [on an annualized basis]. Analysts are cheerleading for the stock (2buy, 3 hold, 0 sell) and we take awe at gross margins (21%) that are almost 5 x what the industry pumps out; operating margins of 12% rip the cover off the ball, no doubt. Overall, this is a quality name with a mean penchant for productivity-enhancing R&D. We see the stock shooting higher but would warn the less risk-tolerant that tighter emmission controls in 2008-2010 could weigh negatively on shares. With $2B in cash, negligible debt, and a FCF yield (free cash flow/revenues) or “margin” of 5%, we think the time to pounce on shares is now — it’ll even pay you a buck twenty a share [dividend] so that you don’t cry and hit the road during downcycles. Our long term price target is $94, a 13% premium to Monday’s closing price.