Oshkosh Corp (OSK)

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Key Statistics

Enterprise Value = $4.996 billion

Operating Income = $639.4 million

EV/Operating Income = 7.8x

Earnings Yield = 10%

Price/Revenue = .6x

Debt/Equity = 33%

The Company

Oshkosh is a 101-year-old company that focuses on building specially designed trucks and military vehicles. The company headquarters is in Oshkosh, Wisconsin. They began in 1917 by creating the first all-wheel-drive truck, known as “Old Betsy.” Throughout the last century, they’ve expanded into making many other types of vehicles. They make off-road trucks, fire trucks, farm equipment, and vehicles for the US military.

The stock has gone down in the last year over jitters concerning tariffs and trade wars. Of principal concern is the impact that tariffs will have on many of the components and raw materials that they use to build vehicles. The stock is presently down 30% year to date over these worries.

My Take

While the stock has gone down in the last year over tariff worries, the actual business is performing well. Revenues were up 12.8% in 2018 from 2017. Operating income was up 32%. Oshkosh is also in excellent financial condition with an F-Score of 8 and a debt/equity ratio that is nearly half of the industry average.

Their close ties with the US government give the company an excellent competitive advantage. For many key vehicles, such as the Oshkosh Light Combat Tactical All-Terrain Vehicle, they are the sole supplier to the US military. The ties with the US military are also long-standing, and they have been selling vehicles to the US military for 90 years. Sales to the US government presently account for 20% of their revenue. The ties with the military also strengthen their reputation in the private sector as a reliable manufacturer of sturdy, quality vehicles.

A major risk to the business would be a decline in the US defense budget. Based on the biases of the current White House occupant, I don’t think that is a serious possibility. Another major risk would be a US recession. While the stock market is fretting over this, I am not very concerned about it, particularly over the next year. The market might also be correct and a trade war will adversely affect the company, but this is speculation that is not showing up in the actual performance of the business. At the moment, this doesn’t appear to be the case.

From a relative valuation standpoint, Oshkosh trades at valuation multiples that are attractive compared to its history and its industry. Oshkosh currently has a P/E of 10.15, compared to an industry average of 18.85 and a five year average of 17.10 for Oshkosh itself. An increase to these levels would be a 68% increase from current levels. Trading at 60% of revenue, this compares to an industry average of 119%. On an EV/EBIT basis, Oshkosh currently trades at 7.8x compared to a 5-year average of 11.44.

Overall, I think Oshkosh is an excellent company with a deep history of solid performance and a stable competitive position. The stock has gone through pain over macro concerns that are not showing up in the real operating performance of the company. At the current valuation, I think it is an attractive choice.

PLEASE NOTE: The information provided on this site is not financial advice and it is for informational and discussion purposes only. Do your own homework. Full disclosure: my current holdings.  Read the full disclaimer.