We are seeing evidence of some recovery in the highly cyclical Class 8 truck industry. The recovery is benefitting from pre-buying of nitrogen oxide compliant engines due to new EPA regulations in 2027.
FTR Transportation reports that August class 8 truck orders increased 42% YOY. While the duration of the momentum is a key question, generally positive cash flows for carriers combined with deferred equipment purchases could bode well for continued growth into 2027.
Here we highlight 2 microcaps in our research universe with Class 8 exposure.
We recently upgraded The Eastern Company (EML) to Outperform based on backlog strength and the prospect of better margins on newer business.
Image Source: Zacks Investment Research
Two of the company’s business units manufacture truck mirror assemblies and mirror-camera systems. The recent strength of the industry (July and August) was not reflected in the latest quarter. In fact, Class 8 softness negatively impacted sales by about $5.7 m for the June quarter.
The Eastern Company (EML) reported an overall company backlog increase of 45%.
Sypris Solutions Inc. (SYPR) is the other microcap with Class 8 exposure. We remain on the sidelines with Sypris Solutions Inc. (SYPR) as the electronics business continues to flag, although attractive end markets like space, aerospace, and defense are showing signs of strength.
Image Source: Zacks Investment Research
Margin pressure has also been acute, but the company noted recovery in the Class 8 market, where Sypris produces heavy-duty drivetrain components.
The monthly report on September Class 8 production will be a highly watched report as it will serve as a post-EPA order barometer of demand and provide more clarity into 2027.
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This article originally published on Zacks Investment Research (zacks.com).
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