The quiet boom in heavy-duty trucks
Orders for big rigs are up, and momentum should continue into next year.
The growth thesis for heavy-duty-truck sales continued to play out in May. Net orders climbed by 84% from May of 2009.
That thesis says truck sales should boom in late 2010 and into 2011 as truck owners, who have put off buying during the recession, resume purchases driven by growth in shipping volumes, new government rules that require reduced pollution, and improved engine technology that increases performance and lowers operating costs.
More than 50% of orders for Class 8 trucks placed in May are scheduled for delivery in the third quarter, just in time to beat the surge in volumes that comes with the peak fall shipping season, according to ACT Research.
In June, this analyst of truck and commercial vehicle markets increased its forecast for heavy-duty-truck production in 2010 by 23% over 2009 levels. (All this assumes, of course, that the U.S. economy keeps chugging along. For more on the latest forecast on that front -- from the International Monetary Fund on Thursday -- see my post).
Orders for medium-duty trucks (Classes 5-7) were also up in May -- by 33% from May 2009. Orders for these classes of trucks have been growing more slowly than for heavy-duty trucks, because end markets among home builders and highway construction contractors have been very slow to recover from the recession -- and in many areas of the country aren't showing any signs of recovery at all.
Earnings of 87 cents a share would be an increase of 189% from the second quarter of 2009. For all of 2010, analysts are projecting earnings growth of 55% from 2009 levels.
As of Thursday, I'm going to raise my target price a tad to $80 a share by March 2011 from the prior $79 a share by March. It closed Thursday at $68.94.
At the time of this writing, Jim Jubak owned shares of Cummins in his personal account.
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Why are stronger numbers considered bad news? Investors are worried about the impact on inflation and interest rates.
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