Oshkosh

Oshkosh reported 6.7% revenue growth to $2.9 billion, but adjusted earnings per share compressed 15.8% to $2.87 due to adverse mix and manufacturing overhead in its Pierce fire truck business.

Why it matters: Robust outperformance in the access business was more than offset by subdued results in the vocational business, prompting management to slightly reduce its adjusted EPS guidance to $11 per share from $11.50 (4%). The access business grew 9.4% and saw a 65% increase in backlog to $2 billion. Despite this, margins compressed 350 basis points to 11.3%. Mega projects remain very supportive, with positive read-through from equipment rental companies. However, tariffs and product mix affected margins. We were more surprised by the flat growth and 280 basis points of margin compression to 13.5% at vocational, driven by lower refuse truck sales, fewer fire truck deliveries, and investments to increase throughput in Pierce’s manufacturing facilities. Segment backlog increased 5.6% to $6.6 billion. The transport business grew 11.9% with ramp-up for the Postal Service contract offsetting weaker defense volumes. However, margins were modestly weaker on mix and warranty costs. Oshkosh expects to receive a substantial new order from the Postal Service before year-end, driving higher volumes.

Between the lines: Despite uneven execution, the company has a robust and growing backlog that provides the revenue visibility to justify its growth outlook and lend credibility to its 2028 ambitions. While we were surprised by the investments in Pierce, that is arguably Oshkosh’s best business.

The bottom line: We are increasing our fair value estimate for narrow-moat Oshkosh to $172 per share from $168, reflecting the time value of money. The shares traded off modestly intraday but had been strong into the print.

Our $172 per share fair value estimate equates to a price/earnings multiple of 15 times. This seems inexpensive against the company's outlook, especially at its higher-margin vocational segment and margin recovery in its transport business, which should be underpinned by higher volumes and restructured defense contracts.

The access segment is currently in a cyclical downturn, having compressed 13% in 2025. We model 4.0% growth for the remainder of our forecast horizon, largely in line with management’s goals articulated in its 2025 investor day. We take a more conservative view on margin progression than management, given our concerns about pricing power dynamics vis-à-vis JLG’s critical equipment rental customers. We anticipate peak margins of 14%, midcycle margins of 12%, and a blended average of 12.5%. We believe this gives management credit for enduring structural improvements in this segment.

For transport (formerly Defense), we forecast 5% growth in our forecast horizon. While management expects as much as 6% annual growth from its postal service contract, we think the outlook for defense activities is more subdued. We also remain skeptical that management can achieve its 10% operating margin target here. Alternatively, we forecast Oshkosh achieving 7% midcycle margins and 6% on average across our five-year horizon.

For vocational, we forecast 9% average growth in our forecast, aided by the contribution from AeroTech. We forecast margins expanding to a peak of 18% and falling back to 15% at midcycle, representing an average of just under 17% during our horizon. Clearly, this is where Oshkosh realizes the greatest pricing power from its highly customizable solutions and strong support activities. The backlog also increases visibility.

Our Stage II forecast period incorporates an estimated investment rate of 15% and an earnings before interest and growth rate of 3%, with perpetual growth of 3%. A 10.0% weighted average cost of capital derives from a market-average cost of equity and the firm’s current capital structure.

We assign Oshkosh a narrow economic moat rating based on intangible assets as well as switching costs, as the company supports large fleets of equipment through extensive dealer networks. Oshkosh has developed recognizable brands in aerial lifts, defense, emergency, and other vocational vehicles. We believe Oshkosh has brand equity with customers, given its ability to provide customers with reliable, high-quality products while offering customers a lower total cost of ownership. Thousands of patents underpin the superior innovation and quality of its products.

We also believe that switching costs are prevalent in the company’s various businesses, as its vehicles are mission-critical and have long cycle times. The transport segment is often characterized by sole-source contracts that lock the customer in. Within the Vocational business, customers are deeply entrenched with Oshkosh and customize their fire trucks, refuse trucks, recycling trucks, and so forth. Recently, the company has expanded into airport vehicles and equipment via acquisition. These vehicles are significant investments for municipalities, and the risk of product failures pushes customers away from unproven new entrants or smaller incumbent rivals.

Oshkosh’s JLG brand in the aerial lift industry is the global leader and highly regarded among customers with an estimated 30%-35% market share. The JLG brand is the top brand globally, due to its high-quality products, strong residual values, and deeply entrenched relationships with rental companies. Oshkosh’s technology-enabled and feature-rich aerial lifts improve safety and drive operational efficiency for customers. Thousands of patents reinforce this. Oshkosh’s booms are embedded with technology that prevents dangerous tip-overs. In addition to safety features, customers value the superior range of motion capabilities that Oshkosh’s booms provide. These give Oshkosh a foundation to sell at a higher price point, despite the competitive pricing environment. Moreover, the company’s top market share position, combined with its feature-rich products, enables it to list products at higher price points compared with smaller players. In North America, we estimate Oshkosh and Genie (Terex’s aerial lift brand) control over 60% of the market.

The rental vertical is Oshkosh’s primary distribution channel for its products in the access segment, serving the majority of its customers. Despite a high concentration of customers, such as United Rentals and Sunbelt, JLG essentially operates in a domestic duopoly alongside Terex’s Genie subsidiary. Rental companies benefit by selling customers the strongest brands, such as JLG. The rental industry is price-competitive, but we believe end users will pay for value. The key considerations for end users when renting aerial lifts are product quality and availability. From a quality standpoint, customers are looking for highly functional (numerous capabilities) and reliable (safe) products to use on construction sites. In terms of availability, end users value the ability to rent equipment on short notice, sometimes within twenty-four hours from initial outreach. We believe JLG and Genie have preserved some pricing power here while benefiting from a symbiotic relationship with the rapidly growing equipment rental companies. We anticipate the equipment companies will continue to gain share, particularly among larger-scale national accounts, and critical suppliers such as JLG and Genie will be direct beneficiaries of this growth.

The company’s military vehicles (now reported within the rebranded Transport segment) are go-to products for numerous military customers globally. Oshkosh has a long history of developing cars for the US Department of Defense and its allies. These customers regularly award manufacturers sole-source production contracts (often including lucrative services/support content) based on product capabilities and pricing. The company is also providing next-generation vehicles to the US Postal Service under a multidecade, multi-billion-dollar contract.

Oshkosh’s fire and emergency vehicles are premium products, but its commercial vehicles face more competition. The company’s Pierce brand offers customers a full suite of emergency vehicles, including aerial, pumper, rescue, and tanker fire trucks. The company’s vehicles are among the strongest-performing and most durable in the industry. Ultimately, this has enabled the company to charge premium pricing, which in some cases reaches seven figures. Similar to its defense vehicles, Oshkosh’s fire and emergency vehicles exhibit complex designs and high reliability. We estimate the company holds over 30% of the North American market. Oshkosh’s extensive dealer network offers customers strong servicing support. This has led to a strong aftermarket opportunity, as fire trucks are often in service for decades. In 2023, Oshkosh acquired AeroTech to increase its presence in vocational vehicles. AeroTech is a leading provider of aviation ground support vehicles, gate products, and other airport-related solutions. The themes of autonomy, safety, and connectedness are well-represented in the group’s portfolio, and AeroTech also generates significant recurring revenue through maintenance and support.

The Transport and Vocational segments also demonstrate customer switching costs, where customers invest substantially in maintaining a fleet of vehicles and equipment with a useful life often extending for decades. Product designs tend to be highly customized to meet exacting standards. Extensive parts and support are a critical component of the procurement decision, which enhances stickiness and reduces total cost of ownership. These characteristics are evident across the light tactical vehicle business, the post office contract, the Pierce business, and AeroTech.

JLG could gain further market share and realize more pricing power.

Oshkosh could drive greater business with the Department of Defense.

The company could make acquisitions into compelling new adjacencies.

The equipment rental companies (highly concentrated customers of the access segment) perpetually squeeze JLG’s margins.

Government contracts allow only middling returns.

Municipal customers push back on pricing or timing, eroding some of Oshkosh’s most lucrative profit pools.