New Paccar Price Target, Checkpoint After Earnings Release

Following up on our initial Q2 2026 earnings comments now that we have digested Paccar’s (PCAR) earnings call, we are lifting our price target on the company’s shares to $155 from $135.

We are making this move to reflect the improving demand outlook for both the industry and Paccar that should translate into further production hikes and bring the benefit of favorable pricing dynamics with it. That combination should drive margins higher in the coming quarters, dropping more to Paccar’s bottom line.

As we reset our price target, we will also lift our checkpoint on PCAR shares to $115 from $95. We will continue to follow monthly industry order figures, freight traffic metrics and related data and revisit our new price target as necessary. With the recent climb in the shares landing them in an overbought condition, we are reiterating our Two rating.

With that said, let’s dig a bit deeper into the learnings from Paccar’s earnings call.

In discussing the North American truck market, where it holds roughly 30% market share, management shared expectations for retail market sales to reach around 145,000 in the second half of this year. That’s up 38% compared to the first half and reflects tight industry capacity, favorable deprecation dynamic with the One Big Beautiful Bill, and the pull forward in 2027 demand due to the pending EPA mandate we’ve discussed.

Outside North America, Europe’s above-16-tonne market is projected at about 310,000 trucks for 2026, up from around 255,000 in 2025. For Paccar, Europe accounts for about 25% of total revenue, which is far smaller than the 60% accounted for by the North American market. The only weak spot is in the South American market, which accounts for about 15% of Paccar’s revenue, where the above-16-tonne market is expected in the 100,000 to 110,000 range versus 115,000 in 2025.

As we see it, 85% of Paccar’s geographic markets are poised for higher production levels in the back half of this year, with favorable pricing dynamics at play. Factor in greater fixed cost absorption and that should yield better margins even before added benefit of additional pricing action. That’s what keeps us bullish on PCAR shares and is fueling our price target increase.

While Paccar did not share any preliminary forecasts for 2027, management commented that it sees favorable demand continuing given favorable GDP growth prospects (over 70% of freight moves by truck) and reshoring/local-for-local industrial activity. Management also shared that Paccar’s order book is essentially full through Q3 and roughly 90% full for the year already, with build slots expected to sell out within the next month or two. This means incremental demand is increasingly getting pushed into 2027.

That, along with favorable pricing conditions, led management to guide current quarter consolidated operating margins to a “strong” 14.5%, with further improvement expected in the final quarter of the year. That strongly suggests better truck and parts margins in the back half of the year compared to the 10% achieved in the first half. To the extent production slots spill over into 2027, that could bring the ability to push price for delivery in the back half of this year. That supports our thinking that H2 margins will be far stronger than those delivered in the first half of 2026.

Outside of the truck operations, Paccar Parts hit record revenue of $1.75 billion with 29.8% gross margin and $417 million in pretax income. For those new to the truck sector, after market parts tend to carry higher margins, which makes them a very nice business to have. It also tends to offset periods of weaker new truck demand as owners and operators continue to maintain the existing truck fleet. Management now sees the parts business trending toward the higher end of its previous up 3% to 5% revenue guidance for the business. Supporting that more optimistic outlook is stronger fleet-services-program revenue and rising parts sales to smaller and mid-size fleets.

On the topic of that pending 2027 EPA mandate we’ve mentioned, Paccar plans to keep selling its current engine lineup, including Cummins (CMI) partnered engines, through 2026 and ease customers into the new compliant engines as the year progresses. Management’s read is that this smooths rather than eliminates the traditional pre-buy cliff, spreading demand more evenly and setting up a stronger, less abrupt 2027 rather than a sharp post-pre-buy drop-off. While that may be the aim, we will remain mindful of what has historically happened once these EPA mandates have gone into effect and pre-buying activity fades.

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At the time of publication, TheStreet Pro was long PCAR shares.