In this article, I have evaluated prominent auto stocks, Tesla, Inc. (TSLA) and PACCAR Inc (PCAR), to predict which could be a year-end stock winner. After thoroughly evaluating these stocks, I think PCAR is a superior choice to TSLA for the reasons discussed in this article.
Passenger automobiles are the most frequent mode of mobility in developed countries. Also, the rising per capita income of the population is increasing the demand for cars in the global market. The industry has seen enormous uptake of advanced technologies, thus boosting the global automotive market.
The global automotive market is expected to grow at a CAGR of 3% until 2031.
Additionally, as concerns over climate change and air pollution intensify, consumers and industries increasingly turn to electric vehicles to reduce their carbon footprint for a greener future. This drive is expected to propel the EV market into a transformative phase, with investments driving the expansion of EV adoption worldwide.
The global electric vehicle market is expected to grow at a CAGR of 13.7% until 2023.
While TSLA declined 11.4% over the past three months compared to PCAR’s 14.6% gain, TSLA also declined 5.1% over the past six months compared to PCAR’s 25.6% gain.
Therefore, here are the reasons why I think PCAR might perform better in the near term:
Recent Developments
On September 6, it was revealed that PCAR partnered with Accelera, the zero-emissions division of Cummins Inc (CMI) and Daimler Trucks & Buses US Holding LLC to expedite and localize the production of battery cells and the battery supply chain in the United States.
The collaborative effort aims to establish a joint venture dedicated to manufacturing battery cells for electric commercial vehicles and industrial applications, contributing to the growth of the clean technology sector and generating valuable manufacturing jobs in the United States.
Recent Financial Results
TSLA’s total revenues for the fiscal third quarter that ended September 30, 2023 came in at $23.35 billion, while its adjusted gross profit declined 22.4% year-over-year to $4.18 billion. Its net income attributable to stockholders declined 43.7% year-over-year to $1.85 billion, while its net income per share of common stock attributable to common stockholders declined 44.8% year-over-year to $0.58.
On the contrary, for the fiscal third quarter that ended on September 30, 2023, PCAR’s net sales and revenues from the truck, parts and other segment increased 23.1% year-over-year to $8.23 billion, while its revenues from the financial services segment grew 24.8% from the year-ago value to $464.10 million. In addition, the company’s net income and net income per share improved by 59.7% and 59.2% from the prior-year quarter to $1.23 billion and $2.34, respectively.
Past And Expected Financial Performance
TSLA’s revenue has increased at a CAGR of 50.4% over the past three years. Its revenue is expected to increase 19.3% this year and 5.1% in the fourth quarter ending December 2023. However, its EPS is expected to decline 21.8% this year, 38.2% in the current quarter ending December 2023, and 4.1% in the next quarter ending March 2024.
Conversely, Over the past three years, PCAR’s revenue grew at a 21% CAGR. Analysts expect PCAR’s revenue to increase by 22.1% this year and 8% in the fourth quarter ending December 2023. Its EPS is expected to increase 56.9% this year and 25.1% in the current quarter ending December 2023.
Valuation
TSLA’s forward P/S multiple of 7.75 is higher than PCAR’s 1.53. Additionally, TSLA’s forward EV/Sales multiple of 7.59x is higher than PCAR’s 1.70x.
Thus, PCAR is more affordable.
Profitability
TSLA's trailing-12-month EBIT margin of 11.18% is lower than PCAR’s 16.52%. In addition, TSLA’s trailing-12-month net income margin of 11.2% is lower than PCAR’s 12%.
Thus, PCAR is more profitable.
POWR Ratings
TSLA has an overall rating of D, which equates to a Sell in our proprietary POWR Ratings system. Conversely, PCAR has an overall rating of B, translating to a Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. TSLA's D grade for Growth is in sync with its poor performance in the recent quarter. On the other hand, PCAR's B grade for Growth is in sync with robust performance in the recent quarter for PCAR.
Moreover, TSLA has a D grade for Stability, which is justified by its 24-month beta of 1.95. On the other hand, PCAR has a C grade for Stability, which is in sync with its 24-month beta of 0.80.
Among the 51 stocks in the B-rated Auto & Vehicle Manufacturers industry, TSLA is ranked #40, while PCAR is ranked #19.
Beyond what we’ve stated above, we have also rated both stocks for Value, Momentum, Sentiment, and Quality. Get all TSLA ratings here. Click here to view PCAR ratings.
The Winner
With the advancements in technology, increasing environmental consciousness and growing the demand for vehicles in the global market, the automotive industry is expected to see robust growth. Industry players such as TSLA and PCAR are well-positioned to benefit from these industry tailwinds.
However, PCAR's high profitability and low valuation multiples makes it the better buy.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Auto & Vehicle Manufacturers industry here.
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PCAR shares were trading at $97.13 per share on Wednesday morning, down $0.50 (-0.51%). Year-to-date, PCAR has gained 49.16%, versus a 22.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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