NGDV Ramp-Up And AUSA Acquisition Will Expand Defense And European Markets

Key Takeaways

• NGDV production ramp-up and technological advancements are poised to significantly boost revenue and margins by leveraging electrification and autonomy.
  
• Contract extensions and market diversification through AUSA acquisition enhance revenue resilience and growth, particularly in Defense and European segments.
  
• Vulnerability in the Access segment and rising interest expenses could strain future revenue growth and earnings if current trends persist.

Catalysts

Provides purpose-built vehicles and equipment worldwide.

• The ramp-up of the Next Generation Delivery Vehicle (NGDV) production will increase revenue significantly as full-rate production is expected by the end of 2025, leading to strong revenue growth in 2026.
  
• Technological advancements and integrations within the vocational segment, including the adoption of electrification and autonomy, are expected to drive margin expansion and long-term revenue growth, supported by strong demand and increased throughput.
  
• The 5-year contract extension for the FHTV program and the expected 3-year contract extension for FMTV A2 should provide better pricing and margin resilience, supporting stronger, more resilient margins for the Defense segment in the coming years.
  
• The acquisition of AUSA is anticipated to unlock new markets, especially in European specialty equipment and agriculture, amplifying revenue diversification and supporting North American sales growth leveraging Oshkosh's existing channels.
  
• Long-term growth in the Access segment is expected due to continued investments in mega projects, data centers, and infrastructure, driving sustained revenue tailwinds despite short-term market softness.

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 8.0% in 3 years time.
• Analysts expect earnings to reach $901.7 million (and earnings per share of $13.82) by about December 2027, up from $679.1 million today.
• 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 2027 earnings, up from 9.4x today. This future PE is lower than the current PE for the US Machinery industry at 23.6x.
• Analysts expect the number of shares outstanding to grow by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.26%, as per the Simply Wall St company report.

Oshkosh Future Earnings Per Share Growth

Risks

• Despite overall growth, there are softer market conditions in North America's Access segment, which could lead to further revenue decline and impact operating margins in this key segment.
  
• Persistently higher interest rates and slowing nonresidential construction activity have pressed the Access segment, potentially affecting future revenue growth.
  
• Adjustments in 2024's EPS outlook indicate a shortfall from prior estimates due to softer Access markets, highlighting vulnerability in expected earnings.
  
• Reducing the 2024 sales outlook and adjusted earnings guidance suggests potential risks in achieving future revenue growth and net margins.
  
• Increasing interest expenses have negatively impacted adjusted earnings per share, which could continue to pressure financial performance if borrowing costs remain high.

Valuation

• The analysts have a consensus price target of $121.02 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 $160.0, and the most bearish reporting a price target of just $98.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $11.3 billion, earnings will come to $901.7 million, and it would be trading on a PE ratio of 10.8x, assuming you use a discount rate of 7.3%.
• Given the current share price of $97.67, the analyst's price target of $121.02 is 19.3% 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.