After discussing a truck component supplier, I have picked up a truck manufacturer as the third company to be affected by improving construction dynamics. Some 29% of Oshkosh Corporation (NYSE:OSK)’s revenue is tied to construction activity. A dominant portion of this revenue is generated through the sale of Aerial Work Platforms (AWPs) and cement trucks by the company.
It is interesting to note that the revenue from construction is still down ~33% from the peak level it once achieved couple of years ago. The company is well positioned to benefit from a recovery in construction activity.
Oshkosh Corporation (NYSE:OSK)’s defense business has been a major headwind to the company. It might feel like digressing from the theme of residential construction, but it is worthwhile to discuss it in order to form an overall opinion on the company.
In its recent earnings release, management lowered the revenue outlook from a range of $3.2 billion to $3.3 billion to the $3.1 billion to $3.2 billion range. However, the bullish aspect was that the operating profit was raised from 6.5% to 7%. This highlights the company’s recently announced layoffs in the segment to curtail costs. Moreover, its recently announced share-repurchase program may help to offset larger than expected declines in defense revenue.
It is clear from the discussion that all three of the companies are expected to benefit from the recovery in housing market. However, only Oshkosh Corporation (NYSE:OSK) and Commercial Vehicle Group, Inc. (NASDAQ:CVGI) are recommended as buy as their low-digit gains for the year show that hardly any positive news has been priced in the stock. I remain on the sidelines on Eaton Corporation, PLC Ordinary Shares (NYSE:ETN) given its enormous gain on a year-to-date basis.
The article 2 Beneficiaries from the Housing Recovery to Buy, 1 to Hold originally appeared on Fool.com and is written by Zain Abbas.
Zain Abbas has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Zain is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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