Will the Paccar Stock Split help the stock?
It is very difficult to find a stock that has delivered net positive returns in 2022. PACCAR, a Fortune 500 company and the largest manufacturer of medium and heavy-duty trucks has sailed through 2022 with a net positive return of about 12%. While major indices like Nasdaq 100 are down by about 33% in 2022, Paccar has outperformed the broader market.
What are the reasons for such outperformance? More importantly, the company’s management has announced a stock split as an outcome of this performance. How will the stock split affect the share price going forward? Here are the answers –
PACCAR Stock Split: The Latest Split
Paccar Board of Directors announced on December 6th, 2022 a 50% stock dividend for the company’s common stock. It is equivalent to one additional share for two shares held. In other words, it is a 3:2 forward stock split. The new shares as a result will be issued to shareholders on February 7th, 2023. The record date for choosing the shareholders is January 17, 2022.
Along with the news of the stock split, the company also announced a special dividend of $2.8 paid on January 5th to shareholders who owned shares of the company on December 16th, 2022. The special dividend was only $1.5 last year, paid in January this year. Additionally, Paccar also announced 25 cents of dividend on post-split shares payable on March 8th to shareholders of record on February 14th, 2023. The current rate of dividend is 37 cents, and 25 cents post-split is a 1.4% increase. Otherwise, also, Paccar is known for constantly raising the dividend by about 50% over the last five years.
PACCAR Stock Split History
Paccar is one of the oldest trading stocks on the Nasdaq. Since 1983, the company stock has undergone six stock splits before the recently announced one. The same is tabulated below for reference
|Date||Ratio||Change in Price before and after|
|October 10, 2007||3:2||-3.52%|
|August 11, 2006||3:2||-0.83%|
|February 6, 2004||3:2||1.89%|
|May 29, 2002||3:2||-1.63%|
|May 22, 1997||2:1||-3.57%|
|Aug 01, 1988||2:1||0.00%|
Inferences from the Past Paccar Stock Splits
Splits are initiated when the share price is in the range of $70-80- In the past, Paccar initiated the six splits when the share price was around $80. This is not only common with Paccar but was seen as a general practice in earlier decades to keep the share price below $50, hence whenever the share price was around $100, a 2:1 split would be initiated by companies. Paccar has kept the price around $50, but used a 3:2 split, hence $80 was set as the pre-split price in most cases.
Also, a particular observation is five out of six splits are done in a span of a decade from 1997-2007. It was the time of stock splits when every other company would come up with a stock split to be in the headlines. The recent stock split is announced after 15 years after the last split. The last split in 2007 was followed by a financial crisis around the globe resulting in a major crash in the share price of Paccar. The stock price was able to cross $80 in 2019 only to be dropped again during Covid. But management has not used $80 as a benchmark in recent years. The price was hovering above $80 from Jan 2021 till September 2022, but there was no news of a stock split as per the pattern seen in the past.
Now it looks as if $100 is set as the benchmark for initiating the split. The stock crossed $100 in November 2022 and hovered around this mark for about a month when the split was announced on December 6, 2022.
Splits were not successful in creating short-term bullish trends – The basic purpose of a forward split is to bring down the share price to make it more affordable to small retail people. Thus, for those who are on the fence and still deciding whether to invest or not, a stock split just makes the share price more attractive. A forward stock split creates a bullish psychological impact on the share price.
But in the case of Paccar, the same is not observed. Only on one occasion out of six, the share price has moved positively on the following day of the split effective date. The price has even moved negative 3% following the split effective date, showing the bearishness surrounding the stock in that period.
This time also, the split was announced on December 6th, 2022. Since then, the stock is down by about 4% (as of 10.01.2022). The split effective date this time is February 7th, 2023 and it will be interesting to note the price movement the next day i.e., on February 8th, 2023.
A Look at Company’s Financial Performance
There is a lot of uncertainty when it comes to the production and sale of vehicles, but Paccar, operating under the brand names like Kenworth, Peterbilt, and DAF has done well fundamentally and has stock price appreciation. The main reason for the outperformance of the stock as compared to major indices like Nasdaq is its financial performance. In Q3 2022, the total revenue came at $7.06 billion as compared to $5.15 billion in the same quarter last year. Similarly, in the second quarter of 2022, truck revenue grew by 28.7% climbing from $4 billion to $5.3 billion. Truck deliveries also came at 46,900, 17% higher than in the second quarter of 2021.
The net income in Q3 came at $769.4 million. That dwarfs the $377.7 million generated a year ago. The rise in profitability also boosted cash flows. Operating cash flow grew from $282.5 million in Q3 2021 to $680.7 million in the recent quarter. These strong results give a forward price-to-earnings ratio of about 13, and the performance has significantly improved compared to 2021. So, Paccar right now is a combination of low forward P/E multiple and strong financial performances.
Does the Stock Split Make PACCAR Stock a Buy?
It is a known fact that the forward stock split does not technically change anything for the stock. It is just dividing a big pizza slice into smaller slices, but the overall matter remains the same. Similarly, the market cap remains the same pre- and post-split for a company. Stock splits have not been that useful for Paccar, but they have followed a set pattern of splitting the stock as and when the share price is around $100.
There are more reasons to buy Paccar, one being its strong financial performance in recent quarters, the other being it is raising dividend payout every year. It can be a good long-term investment, with or without the announced split.