Description

Oshkosh Corpmanufactures a broad range of specialty vehicles and vehicle bodies. There are four  operating segments: 1) Access

Equipment, which includes aerial work platforms, telehandlers, scissor lifts, and vertical masts, often used on construction sites to reach elevated heights; 2) Defense, which includes the construction of a variety of military vehicles for the U.S. Department of Defense; 3) Fire & Emergency, which is mostly the manufacture of various apparatuses for fire trucks; and 4) Commercial, which includes the manufacture of refuse collectionvehicles for the waste services industry.

In the past two years, Oshkosh has often been mentioned in the media for its key role in the war in Iraq. The U.S. Department of Defense estimates that over 60% of U.S. military casualties in Iraq are caused by Explosively Formed Projectiles, or EFPs. EFPs are essentially land mines that discharge specially-shaped metallic discs designed to penetrate armor plating used in military fighting vehicles. EFPs are oftenplaced on the curb of roads so as to be detonated when vehicles or pedestrians pass by, and so are sometimes also known as roadside bombs. In response to this problem, Defense Defense Secretary Gates said in the spring of 2007 that the U.S. military's highest priority was the design and deployment of military vehicles that would be resistant to EFPs. The ensuing program came to be known as the MRAP (Mine Resistant Ambush Protected) program.

Out of the MRAP program a series of so-called MRAP vehicles was produced and deployed in Iraq to replace the older military vehicle, the "Humvee". These new MRAP vehicles include two important features. The first, and perhaps most obvious feature, is a radically thicker, heavier plate of armor on all surfaces, making it far more difficult for projectiles to penetrate through the vehicle. The second feature is that the bottom of the vehicle is V-shaped (when viewed from the front or rear); the benefit of this feature is that when such a vehicle trips a roadside bomb, the occupants of the vehicle are far less vulnerable to the explosion because of the few extra feet the projectiles travel to meet the bottom of the vehicle. However, an initial deficiency of this new class of MRAP vehicles was that the additionalheavy plate of armor made the vehicles much slower and too heavy. The problem presented by the weight of the vehicles was that an estimated 72% of bridges in the world could not support them. Oshkosh answered this problem by forming a joint venture with Ceradyne, a company involved in the design and manufacture of ceramics. As a material, ceramics are very resistant to EFPs, but have the crucial benefit of being far lighter than armor made with metallurgy. The vehicle Oshkosh and Ceradyne designed with this new type of ceramic armor is known as the "Bull".

Evidenced by the recent share price of Oshkosh, the investment communityappears largely uninterested in recent developments involving the Bull. Neither do investors appear to be interested in the company's announcement in November that it hasbroken ground for a new manufacturing facility in Tianjin, China for the construction of access equipment vehicles (largely airport rescue vehicles) for the Asian market. This new facility will be the company's first ever China-based manufacturing facility. Rather, investors appear solely to be interested in one matter - the solvency of the company in the ongoing credit crisis.

The balance sheet $2.7 billion of long-term debt, with shareholders' equity of $1.4 billion, which gives it a long-term debt-to-equity ratio of 1.93x. Less $2.3 billion of goodwill leaves a negative equity. In FY2008 (fiscal year ended September 30, 2008), the company recorded a goodwill impairment charge related to its refuse collection vehicle business, Geesink. Investors worry write-downs in 2009 could lower earnings this year below stated b v and maybe violate a minimum leverage ratio.

In 12 months, the Oshkosh market capitalization has collapsed by 75% andits p/b v and p/e multiples are way below what they've been in over ten years. Shares are priced at 0.6x book value and 6.6x estimate for 2009. In contrast, its 10-year average p/b vratio is 2.7x, and the corresponding average P/E is 15.7x. Were the shares were accorded their ten-year historical average multiple of b v, appreciation would be 350%, on a p/e basis, the increase would be 138%.

Listing of competitors EPS and P/E by  OSK segemts served.

                              Symbol    Price       P/E      P/B

Access Equipment
Terex Corp.             TEX        $17.74     3.1x     0.7x

Haulotte Group        PIG FP     €4.86     4.2x       --

Linamar Corp.         LNR CN     3.99      3.9x      0.3x

Defense

BAE Systems           BA LN  £390.75     10.5x      2.4x

Force Protection       FRPT      $6.74    10.6x       1.7x

Fire & Emergency

Rosenbauer Int'l    ROI GR  €21.39      7.6x       2.2x

Commercial

Dover Corp.          DOV     $33.12     9.1x         1.6x

 
Oshkosh                  OSK       $11.39      6.9x            0.6x

Rising input costs and lower worldwide demand especially in the second half of 2008 caused the company's ROA  to fall ts lowest level in ten years. Its ten year average ROA of 6.5% is 66% higher than its FY2008 ROA of 3.9%. The potential return ibecomes far greater if the company can manage the current economic downturn and return to its normalized level of profitability. In Success modw the stock could be into the $eighties.

If you accept that todays credit conditions will not be extant sometime in the future the return possibility in Oshkosh is very large.

Catalyst

The current credit markets not being permant.

If one is willing to take a contraian view and anticipate credit conditions such as exists today is not a permnanent feature of the U S financial markets and will rin fact evert to norms at some future date, the return potential in Oshksh is substantial