PACCAR Inc (PCAR)

Conclusion

PACCAR designs, manufactures and sells light, medium and heavy-duty commercial trucks under the Kenworth, Peterbilt and DAF nameplates, and runs parts distribution and truck financing operations. On 2026-11-09 the shares closed at 105.73 USD, giving a market capitalisation of 55.7 billion USD.

The verdict is overvalued. The fair value band runs from 65.91 to 98.87 USD with a midpoint of 82.39 USD, giving a margin of safety of -22.1% at the current price. The price-to-earnings ratio of 20.2 is 43.2% above its ten-year median of 14.1, and enterprise value to EBITDA of 15.7 is 54.0% above its median of 10.2. The discounted cash flow value is 89.65 USD per share at a discount rate of 9.7%. The reverse DCF implies growth of 9.4% a year, against revenue growth of 8.7% a year over five years and free cash flow per share growth of 17.3% a year over the same period.

The case rests on a strong balance sheet and recent growth. The Altman Z-score of 3.52 and interest coverage of 9.5x are the strongest numbers. The weakest are three-year earnings per share growth of -7.8% a year, the 90-day downward revision of -3.9% to next year's estimates, and a return on invested capital only 1.3% above the cost of capital, at 9.7% against 8.4%.

Financial health

Financial strength is green, held up by a current ratio of 3.2, net debt to EBITDA of 1.4x and interest coverage of 9.5x. Debt to equity is 0.71 and the quick ratio is 2.9. The Altman Z-score is 3.52, in the safe zone; the model was designed for manufacturers, and PACCAR is one. Insolvency risk is low, about 0.2% by the estimate of the Ohlson model over one to two years. Debt has fallen by 2.0% a year on average over five years relative to revenue growth, which is a supportive trend for leverage.

Earnings quality

Earnings quality is yellow, with the Piotroski score of 4 out of 9 and the free cash flow conversion of 69.0% over five years pulling it down. Trailing twelve-month conversion is stronger at 84.6%, and the accrual ratio of -4.7% indicates cash earnings exceed reported earnings. The company does not report its stock-based compensation, so the free cash flow after that cost is not available, although the reported figure is 2.34 billion USD. The share count has grown by 0.2% a year over five years, so there are no net buybacks. The Beneish M-score is not available. Over the last eight quarters, earnings beat expectations three times and missed three times, with an average surprise of -3.3%.

Profitability

Profitability is yellow. Operating margin is 10.6% against its ten-year median of 11.4%, and gross margin is 16.1% against 18.6%. Net margin of 9.7% is above its median of 9.0%. Return on invested capital is 9.7% against a weighted cost of capital of 8.4%, a return on invested capital minus cost of capital of 1.3%, rated neutral. Its five-year median return on invested capital is 16.3%, so returns have compressed. Return on equity of 13.2% is partly the product of leverage: the DuPont split shows a net margin of 8.4%, an asset turnover of 0.64 and an equity multiplier of 2.30.

Growth

Growth is green. Revenue compounded at 8.7% a year over five years and 4.1% over ten, but fell 0.4% a year over three years. Earnings per share compounded at 12.6% over five years, yet declined 7.8% a year over three years. Free cash flow per share grew 22.5% a year over three years, 17.3% over five and 14.0% over ten. Revenue rose in six of the ten comparable years. Analysts expect earnings per share to grow 16.8% next year, but the estimate has been cut by 3.9% over the last 90 days.

Valuation

Valuation is red. Multiples sit above their ten-year medians on price to earnings (20.2 against 14.1, a premium of 43.2%), enterprise value to EBITDA (15.7 against 10.2, a premium of 54.0%) and price to sales (1.95 against 1.39, a premium of 40.7%). Price to free cash flow of 23.8 is in line with its median of 24.1, and price to book of 2.66 is at a discount of 14.7% to its median of 3.12. The discounted cash flow value is 89.65 USD per share at a discount rate of 9.7%, with 54.6% of value in the terminal period. The fair value from historical multiples is 75.14 USD. The free cash flow yield is 4.2%. The dividend yield is 2.6%, the forward yield 1.4%, and the payout on free cash flow 62.1%.

Risks

The main risk is that earnings keep falling: three-year earnings per share declined 7.8% a year, and next year's estimates have been cut in four separate revisions over 90 days. A further fall in return on invested capital, now only 1.3% above the cost of capital, would weaken the case for the current premium. Weaker free cash flow conversion over five years, at 69.0%, would reduce confidence in reported profits. The company does not report stock-based compensation or a Beneish M-score, so those checks cannot be made. This analysis has no debt maturity schedule and no revenue by segment, so refinancing risk and the mix of truck, parts and financial services earnings cannot be judged. The fair value band rests on fixed assumptions, including a 5% equity risk premium and capped growth, and is an order of magnitude, not a price target.