PCAR

PACCAR is a best-in-class industrial cyclical, not a broken business. The MD&A notes its 87th consecutive year of net income, and the balance sheet is pristine: stockholders' equity grew 10% to $19.3B in a down year, retained earnings rose to $18.7B, and operating cash flow held at $4.42B (-4.9%) versus only $743M of capex — easily funding the $2.27B dividend. The problem is purely cyclical: FY2025 revenue fell 15.5% to $28.4B and net income dropped 42.9% to $2.38B ($4.51 EPS), driven by lower truck deliveries in all major markets (truck sales $19.37B vs $24.84B). Parts (+) and Financial Services (+) partially offset, but the Truck segment, 68% of sales, is the swing factor.

Valuation is the sticking point. The headline 26.4x P/E looks rich, but it sits on trough earnings depressed further by a $264.5M after-tax European litigation charge; adjusted EPS was $5.01 (P/E ~23.7) and management cites adjusted ROE of 15.1% vs a reported 13.6% (down from 26.2% in 2024). Even normalized, the stock is not obviously cheap — P/S of 2.2 and a low-20s multiple on mid-cycle earnings imply you are paying a fair-to-full price for a company whose 2026 outlook is essentially flat: U.S./Canada Class 8 industry sales of 230,000–270,000 units vs 232,800 in 2025, with Europe and South America guided lower.