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Michael Burry

Paccar
NASDAQ:PCAR
2000-2001
Industry: Heavy Trucks
Category: Accounting/Cyclical

Context
Paccar is the world's 3rd largest maker of heavy trucks.

Why the Company is Mispriced
Paccar is a cyclical and in 2000 the economy was possibly heading into a recession.

Alternative View
Paccar has been profitable 60 years running, has a 17% ROE over the past 14 years, and a 13% EPS growth despite it's 35-70% dividend payout.

Paccar's small financing business accounts for 10% of operating income, but it creates a huge misunderstanding.
The financing operations are conservative, having a equity-to-asset ratio of 20%, while S&Ls are at 5% and commercial banks are at 8%.
Furthermore, the financing operations had a 20% operating margin, meaning that the company is lending at 20% more than it's cost to borrow.
Burry saw the interest paid on debt as a COGS rather than an interest expense.
Therefore, Burry ignores the financing operations debt when calculating EV.

This leaves 727m in net cash, on a 3.1b MC, for a 2.4b EV on the trucking production business, which is the meat of the company.
As the company makes 840m in CFFO, since maintenance capex is not broken out my management, Burry uses depreciation as a ballpark number instead.
Paccar's 1999 depreciation was $140m, resulting in a FCF of 700m.
Therefore, Paccar is selling for less than 4x FCF.
Since Paccar is cyclical and the economy is heading into a downcycle, this is 4x peak FCF.
Paccar is cyclical and we are heading into a downcycle, so this is 4x peak FCF.
In 1996, a minor cycle, cash flow fell only 15%. In 1990-92, cash flow fell 70%.
But coming out of the cycle, Paccar will take market share.
This is a strong company that you buy in a downcycle.
There is no catalysts. Funny thing about catalysts -- the most meaningful ones are hardly ever expected.

Result
Burry recommended Paccar at ~5.5/sh in Aug 2000.
The share price was $7.50 in 1Y, $17 in 3Y, and $20 in 5Y.
Sell date is unknown, but using the 5 year holding period, that's a 360% total gain or 30% CAGR.