UBS Securities Friday said it was less optimistic about the outlook for Paccar and Cummins, downgrading the stocks on the belief that Class 8 truck orders will continue to fall for the remainder of the year.
The shares have performed well this year, analyst David Bleustein notes, which he attributes to stronger-than-expected earnings and a slower deterioration in order rates for Class 8, or heavy-duty, trucks than was anticipated.
“At this point, we believe the 2006 truck build schedules are largely set, which should reduce the potential for better-than-expected orders and positive earnings revisions,” he said.
Bleustein said that while order rates have dropped already, the declines have been less dramatic than the 30-40 percent falloff in 2007 volumes that is currently expected.
“Over the next few months, we believe the reduced numbers of available build slots alone could cause the order rates to fall more than 30-40 percent, which could exert some downward pressure on the stocks,” he said.