Oshkosh Scores Big With EV Contract

Good News Sends Oshkosh Stock Soaring

Workhorse Group (NASDAQ:WKHS) investors had their hopes dashed when the USPS awarded its lucrative, multi-billion dollar contract to Oshkosh Corporation (NYSE:OSK) but OSK investors are cheering. The deal, expected to be worth upwards of $6.5 billion over the next ten years, not only thrusts Oshkosh into the EV spotlight but boosts its revenue outlook significantly. What was once a modest outlook for sustained mid-to-high single-digit revenue growth has now become much more. The deal with USPS opens the door to other contracts because Oshkosh will have to build out the facilities to get the job done.

Oshkosh Lands Hot Deal With UPS

Oshkosh is an industrial giant with its hands in many fields including EV. The deal with USPSwas perhaps foreshadowed by an earlier deal, one announced just a few weeks prior, that sets the company up well to execute now. What we’re talking about is the joint development project with Microvast. Microvast is engaged in battery development and application and already a target of Oshkosh’s interest. Microvast is expected to merge with SPAC Tuscan Holdings and Oshkosh is included in the PIPE investment. The new deal with Microvast is for a joint development project to explore and facilitate how Microvast can support Oshkosh’s future EV projects.

Fast forward to the present and Oshkosh’s new EV projects include a multi-billion dollar contract with USPS. The deal is for a ten-year contract to modernize the USPS fleet with next-generation vehicles. The initial investment from USPS of $482 million is worth 670 basis points of growth for Oshkosh this year alone and will be put toward finalizing the design and building out the final assembly facilities. The vehicle will be purpose-built for the USPS with a right-side drive among other features.

Interestingly enough, the deal is not EV-specific. While most of the vehicles will be EV some will be built on Oshkosh fuel-efficient internal combustion engine systems. The EV portion of the fleet will be built with retrofit in mind so that future advances in technology can be incorporated as it emerges. USPS expects to have Oshkosh build 50,000 to 165,000 of the new vehicles for an estimated $4.25 to $16 billion in future revenue.

What The USPS Deal Means For Oshkosh Investors

What this means for Oshkosh investors is a significant uptick in revenue and earnings outlook. The initial investment is worth about 7% in growth for Oshkosh right off the bat and the future is even brighter. Once production begins and deliveries commence Oshkosh will begin to see a sustained uptick in revenue that could double the current growth outlook. With shares trading at only 8X next year’s earnings to begin with, this jolt to outlook should trigger a massive multiple expansion. The good news is that Oshkosh has more than just EV to sustain it, what with the global economic recovery already underway.

And there is a dividend for investors to consider as well. Oshkosh is only yielding about 1.20% with shares trading near $117.50 but it is a safe payout and a growing distribution. The company has been raising the payout for seven years at a double-digit CAGR and is only distributing 23% of its earnings. At this rate, it could continue to sustain double-digit increases without the USPS deal. With the USPS deal, we expect to see a robust increase at some point in the next year or two.

The Technical Outlook: It’s A New Game For Oshkosh

Shares of Oshkosh surged in the wake of the USPS deal and are moving higher today as well. The caveat is that price action is capped by resistance at the new all-time high and the new candle is smacks of uncertainty. In the near-term, price action may move sideways or even pullback from resistance while the market digests the news and investors rotate in and out of the stock. Longer-term, we view this stock as grossly undervalued and see it moving to new highs fairly quickly. Assuming a $15 flagpole is forming, our initial target is $130.