Unlock: Oshkosh Corp (OSK) – Stock +27% In One Month Since Our Bull Case
It pays to do fundamental research. This bullish view was presented to clients on November 7. Stock +27% since, monster winner for clients. To learn more about our approach and how you can become a successful trader, sign up for 2 week trial and test drive live chat room with some of the best traders: SUBSCRIBE
November 7, 2016
Oshkosh Corp (OSK) – Keep an eye on this chart Jags. Laying out long term bull case here based on my research last night with chart setting up for breakout, but there is absolutely no option activity in this. Very low open interest in entire option chain. OSK is $4 billion diversified industrial but the part that gets my attention is its Defense business. Revenue breakdown:
Access Business (41% of revenues growing only +1% YoY) – This is the trouble part of total business. Access provides aerial work platforms and telehandlers used in construction, agricultural, industrial, institutional and general maintenance applications). Despite being a trouble segment, Access posted strong +776M in revenues beating consensus of $713M with strong margins at 9.4% vs. 8.8% estimate vs. 7.7% last year. This is cyclical business and depends on oil and gas and agricultural business. Cautious rental spending environment as suggested by United Rental (URI) remains a drag at least for now. High free cash flow but little growth.
Defense Business (28% of revenues growing +49% YoY) – This is where hyper growth comes and this business is becoming larger and larger part of total revenues, hence it should provide accelerating growth rate along with multiple expansion. OSK defense is a global provider of light, medium, mine resistant ambush protected and heavy tactical wheeled vehicles (TWVs). The segment is driven by US armed forces involvement in multiple conflicts and increases in military readiness, in an effort to maintain an adaptable and agile force. Starting in October, OSK started shipping low quantities of Joint Light Tactical Vehicles (JLTV). See picture below of what it looks like. The growth ramp from here based on defense budget outlays gets very very bullish. Only few hundred in Q4, rising to 750 vehicles in FY2017, rising to 2,000 in FY2018, rising to 5,000 in FY2019. In Analyst Meeting on September 23, management cited “meaningful long term replacement opportunity” which equates to as much as 120,000 armored Humvees that represents half of current installed base. And this does not include potential large deals with several foreign governments that is currently underway (management cited briefly but did not disclose the parties and amounts for security purposes). Reason for hyper growth: these new JLTVs are best in its class powered with TAK-4i (independent suspension system equal ride but 70% faster to MATV), Command Zone (electronics equipment), NetReady (network connectivity), and Core1080 (ballistic protection). The full rate of max production will reach in 2019 and management believes the economies of scale will result in margin improvements from current 8.5% to 9.5% in this segment.
The opportunity in Defense is massive!
