A U.S. manufacturing stock for gains and income

Wisconsin-based Oshkosh Corp. reported better earnings in the year ended September 30. It’s expected to earn more in fiscal 2017, particularly with the launch of its new joint light tactical all-terrain military vehicle. This vehicle manufacturing stock remains a buy for further long-term share price gains and growing dividends.

Oshkosh Corporation (NYSE—OSK) manufactures a range of specialty commercial, fire and emergency apparatus as well as military vehicles. These are niches that face less competition than other automotive manufacturing stocks. The company owns manufacturing operations in the United States, the United Kingdom, Mexico, the Netherlands and Sweden. This gives Oshkosh geographical diversification.

In the year to September 30, Oshkosh earned $234 million, or $3.14 a share compared to $239 million, or $3.02 a share, the year before. This excludes one-time items in both years.

Oshkosh’s earnings per share increased, despite the lower total earnings. That’s due to share buybacks. In fiscal 2016, the number of diluted weighted-average shares outstanding fell by a net 4,548,500, or 5.8 per cent, to 74,432,918. The company has repurchased more shares than it has issued in each of the past four years. The number of shares is down by more than 22 per cent from a peak of 92,620,000 in fiscal 2012.

Defence, fire and emergency vehicle sales strong

Oshkosh has launched a new military vehicle. President and chief executive officer Wilson Jones said: “During the (fourth) quarter, we also began shipping our revolutionary new defense vehicle, the JLTV (Joint Light Tactical Vehicle). This is just the beginning of our eight-year contract to supply the U.S. Army and Marines with the world’s most capable light protected tactical wheeled vehicle. There is great interest in the JLTV from international customers as well, which further strengthens our long-term positive outlook.”

Oshkosh continues to manufacture other military vehicles. In the three months to September 30, for instance, it sold 325 M-ATVs (Mine Resistant Ambush Protected All Terrain Vehicles).  In fiscal 2016, the defence segment’s operating income totaled $122.5 million. This was up sharply from operating income of only $9.2 million, the year before. Defence’s order backlog was up by almost two-thirds, to $2.332 billion.

Mr. Jones is also upbeat about fire and emergency vehicle sales. He said: “We also benefited from revenue growth in our fire & emergency segment, which drives our confidence in the strength of this business as we enter fiscal 2017.” Its operating income jumped by 53 per cent, to $67 million, in fiscal 2016. The order backlog climbed by 7.9 per cent, to $853 million.

Access equipment down; commercial vehicle sales flat

Oshkosh’s access equipment business did worse in fiscal 2016. Its operating income plunged by more than a third, to $263 million. Its order backlog declined by 14.5 per cent, to $179 million.

Oshkosh’s commercial vehicle manufacturing business did a little better in fiscal 2016. Its operating income inched up by 4.8 per cent, to $67.6 million. But its order backlog is down by 10.8 per cent, to $173 million.  Mr. Jones sums up by saying “customers with exposure to construction markets are maintaining their cautious approach to capital expenditures, but our defence and fire & emergency segments help provide a solid outlook for fiscal 2017.”

Oshkosh is expected to earn $3.32 a share in fiscal 2017. Based on this estimate, the shares trade at a reasonable price-to-earnings, or P/E, ratio of 16.9 times. In fiscal 2018, the company is expected to earn a record $3.69 a share. Based on this estimate, the shares trade at an even better P/E ratio of 15.2 times.

The consensus recommendation of 10 analysts is that Oshkosh is a ‘Strong Buy’. We see this specialty vehicle manufacturing stock as a buy for further long-term share price gains and modest but growing dividends.

 

The MoneyLetter, MPL Communications Inc.
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