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After Icahn: Is Oshkosh Corporation (OSK) Set for a New 5-Year High?

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On April 1, Oshkosh Corporation (NYSE:OSK) set a new 52-week high of $42.66; that is roughly a month before the company announced its fiscal 2013 second quarter results. That price is just about $2 away from its current 5-year high of $44.57 set on April 23, 2010. OshKosh is a special vehicles company based in Oshkosh, Wisconsin. The company faces competition from Terex Corporation (NYSE:TEX), its largest direct rival, Federal Signal Corporation (NYSE:FSS), and a privately held BAE Systems Land & Armaments.

Oshkosh Corporation (NYSE:OSK)

Oshkosh Corporation (NYSE:OSK) was the subject of a hedge fund boardroom war with activist investor Carl Icahn in 2012. However, the value investor did not manage to engineer a takeover, which he would have used to spin-off JLG, a subsidiary of the trucks and government vehicles manufacturer. OshKosh acquired JLG, a manufacturer of lift equipment for use in all industries, in 2006 for $3.2 billion.

The activist investor was pushing for a $32.50 per share takeover, which the company’s shareholders threw out the window, terming it underwhelming. OshKosh had indicated that he never intended to sell or liquidate the company’s other lines of business, which include military trucks, fire trucks and construction-related vehicles. Nonetheless, shareholders must now be smiling to see the company trading 19.78% to the upside of what the activist investor offered.

Additionally, the signs are promising for Oshkosh Corporation (NYSE:OSK), as it recently received a $192.8 million deal from the Pentagon, which will see it supply and maintain fire trucks for the government unit up to 2018. The private construction boom is also set to guarantee a continuous stream of income, with predictions that the industry should continue growing by about 9-12% for the next two years. This growth rates have the capacity to sustain OshKosh’s current rally, to the point of setting a new 5-year high and beyond.

Highlights from FQ2 results

Oshkosh Corporation (NYSE:OSK) beat the earnings estimate of $0.86 by a massive $0.11 per share after reporting EPS of $0.96. This represents nearly a 132% increase from last year’s FQ2 EPS of $0.47. However, the company’s revenues came short of analyst estimates, after falling 3.8% from the amount reported in FQ2, 2012. However, operating income increased from last year’s $84.1 million to $134.6 million, representing a 60% growth.

OshKosh’s defense segment sales continued to deteriorate as they fell by 16.2% from last year. The segment results also included $1.4 million of net charges related to workforce reductions in that segment. However, improved sales mix, including the ramp up of sales of M-ATV units to the UAE and improved operational efficiencies reduced the impact of the segment’s huge decline. Following this massive decline in the defense segment, Oshkosh Corporation (NYSE:OSK) CEO David M. Sagehorn said:

“In our Defence segment, we’re reducing our estimated sales range for the year by $100 million to a range of $3.1 billion to $3.2 billion. The reduction in our sales estimates is largely the result of the decrease in our estimate of after-market sales, some of which we expect to be driven by sequestration, as well as some vehicle sales shifting to 2014.”

Current opportunities

In a recent survey by Bloomberg, construction spending rose by 4.5% in the 12 months ended April 30. According to the survey, private projects were up as compared to the decline reported in public spending. The Commerce Department reported that outlays increased by 0.4% to $860.8 billion in April. On the other hand, private construction rose by 1% in April from the previous month, representing the highest spending since December last year. However, public projects were down 1.2%, which followed last month’s decline of 2.9%, thereby subjecting the sector’s spending to its lowest level since October 2006.

Sales of new properties also rallied 2.3% to a massive 454,000 homes in April, in what the Commerce department noted as the second fastest since July 2008. This pace is expected to continue for the near future, unless something out of the ordinary happens. Russell Price, senior economist at Ameriprise Financial, Inc. (NYSE:AMP) in Detroit, told Bloomberg, “Unless we get a jump in interest rates for some unforeseen reason, which I do not expect, I do think it is a solid path higher for the sector.”

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