Launch Of Autonomous Jet Bridges Will Boost Operational Efficiencies

Key Takeaways

• Oshkosh's ramp-up of next-gen delivery vehicles and innovation in AeroTech will drive significant future revenue growth and operational efficiency.
  
• Strong vocational backlog and improved defense contract margins will enhance revenue and support healthy operating margins.
  
• Oshkosh faces challenges from market conditions and interest rates affecting growth, legacy contract issues impacting defense margins, and potential tariffs influencing profitability and cash flow.

Catalysts

Provides purpose-built vehicles and equipment worldwide.

• Oshkosh's production ramp-up of the next-generation delivery vehicle (NGDV) for the United States Postal Service is anticipated to significantly boost revenue in 2025 and beyond as it reaches full production rates.
  
• The launch of innovative technologies in AeroTech, such as autonomous jet bridges and connected solutions, is expected to enhance operational efficiencies and drive revenue growth.
  
• Oshkosh's strong backlog in the Vocational segment, particularly in municipal fire trucks, is likely to support future revenue growth and sustain healthy operating margins.
  
• The revision of pricing conditions for Defense contracts, such as the FMTV and FHTV programs, is expected to improve net margins in the future.
  
• The introduction of electric refuse collection vehicles and advanced AI technologies is expected to drive revenue growth and improve Oshkosh's market position within its Vocational segment.

Oshkosh Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Oshkosh's revenue will grow by 2.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.4% today to 7.0% in 3 years time.
• Analysts expect earnings to reach $801.3 million (and earnings per share of $12.56) by about April 2028, up from $681.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.8x on those 2028 earnings, up from 8.0x today. This future PE is lower than the current PE for the US Machinery industry at 19.9x.
• Analysts expect the number of shares outstanding to decline by 1.34% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.52%, as per the Simply Wall St company report.

Oshkosh Future Earnings Per Share Growth

Risks

• The Access segment is experiencing softer near-term market conditions due to nonresidential construction activity and elevated interest rates, which could potentially impact revenue growth in the short term.
  
• The Defense segment has been impacted by legacy fixed-price contracts that could continue to pressure margins until better pricing terms are secured, potentially affecting net margins.
  
• High interest expenses on revolving credit facilities have flattened adjusted earnings per share despite higher operating income, suggesting a potential drag on earnings.
  
• Timing delays on unit deliveries in the Defense segment have affected free cash flow, which might pose risks to Oshkosh’s liquidity and cash flow projections.
  
• Concerns over potential tariffs could influence Oshkosh's cost structure and pricing strategy, impacting net margins and profitability depending on the outcome of policy changes.

Valuation

• The analysts have a consensus price target of $112.314 for Oshkosh based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $163.0, and the most bearish reporting a price target of just $91.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $11.4 billion, earnings will come to $801.3 million, and it would be trading on a PE ratio of 10.8x, assuming you use a discount rate of 7.5%.
• Given the current share price of $84.48, the analyst price target of $112.31 is 24.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.