Oshkosh Is A Top Pick In U.S. Machinery Sector

While Oshkosh Corp (NYSE: OSK) has outperformed its peers by 18 percentage points year-to-date driven by positive defense news, the stock trades in line with the peer group, despite the company’s superior growth profile.

Deutsche Bank’s Nicole DeBlase initiated coverage of the company with a Buy rating and price target of $62.

EPS Upside

DeBlase believes there could be 9 percent upside to the FY17 EPS consensus expectations driven by defense margins.

The analyst mentioned Oshkosh has the strongest four-year outlook in Deutsche Bank’s coverage universe, while estimating 6 percent revenue and 23 percent EPS CAGR during 2016–2020.

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“The bulk of this strength will be driven by Defense, where the company will benefit as Joint Light Tactical Vehicle (JLTV) shipments to the US DoD ramp up,” DeBlase stated.

While the 2017–2018 delivery schedule is well known, the analyst believes consensus is not adequately modeling the margin mix benefit. In addition, incremental international MRAP orders are likely to drive expectations up.

Recovery In FY18

“We agree that Access sales are likely to decline modestly in FY17e; however, this is already priced into the stock, and we see scope for recovery in FY18e as O&G headwinds abate and rental fleet replacement resumes,” DeBlase went on to say.

The analyst also expects management to revive its MOVE Initiative at Oshkosh’s September analyst meeting, which could lead to structural margin upside in the commercial and F&E businesses, driving EPS accretion.

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