The US is being hit by multiple waves of new infrastructure investment. 

Total public construction spending has skyrocketed in recent years, climbing from ~$360 billion/month in January 2022 to over $500 billion/month by January 2025, spurred by the $1.2 trillion Bipartisan Infrastructure Law aimed at repairing and replacing aging public infrastructure.

And this acceleration in spending has extended beyond the government. Last year, corporate assets were at their oldest level in more than 20 years. 

For years, American corporations were able to get away with this thanks to “just in time” practices, but the pandemic brought the flow of goods to a halt and exposed the need for companies to invest in supply chain resiliency.

Meanwhile, Trump’s tariff threats have further accelerated the need to rethink supply chain infrastructure, with many companies looking to bring manufacturing back on shore. 

Already, companies such as Apple, IBM, Nvidia, and Johnson & Johnson have committed over a trillion dollars to US-based capex in the coming years.

This nearshoring trend has also coincided with an AI investment race among the largest firms into data centers and related power and cooling infrastructure. 

Back in 2015, the biggest tech companies (Amazon, Google, Meta, and Microsoft) spent a combined $24 billion on data centers. 

That number jumped to $95 billion by 2020 and $220 billion last year. Spending is expected to exceed $320 billion this year alone.

From all angles, investment in US-based infrastructure has accelerated, and those companies that help facilitate its execution may be set up to be major winners.

Oshkosh (OSK) is a manufacturer that is often best known for its contract with the US military to build tactical wheeled vehicles to replace the Humvee. 

That said, this business, combined with its USPS vehicle replacement contract, makes up Oshkosh’s smallest segment by revenue (~20%), transport. Transport is also the lowest profitability segment, with just a 2% pre-tax operating margin.

The real potential of Oshkosh lies in its lesser-known but larger business lines. The remainder of Oshkosh’s business is split between its Access (~50% of revenue) and Vocational (~30%) segments. 

Access manufactures purpose-built vehicles such as aerial work platforms and telehandlers used for a variety of construction activities, while Vocational builds specialized vehicles for other infrastructure and municipal activities, ranging from concrete mixers to fire and garbage trucks to ground support at airports.

These business lines are set up nicely to ride the wave of a massive investment cycle from corporations and governments, and Oshkosh has leveraged innovation and its powerful brands across these niche areas to significantly improve its profitability in recent years.

The firm’s Access segment has seen pre-tax profit margins roughly double from 8% in 2022 to 16% by 2024, while Vocational profit margins have also ramped quickly from 7% to 12% over the same period. As the firm continues to transition more into industrial technologies, it should see further margin expansion opportunities.

The firm reinvests nearly 35% of its free cash flow into organic investment that helps solidify its market positioning, and another 10%-20% into opportunistic M&A that can further expand its reach and capabilities. 

Currently, the firm estimates a combined addressable market for its Access and Vocational segments of over $40 billion, meaning it has plenty of runway to expand its roughly 20% market share.

With a record backlog in Vocational, and investment into electrification and autonomous vehicles serving as an additional catalyst for a vehicle replacement cycle, Oshkosh appears to have plenty of room to grow alongside favorable market trends. This could help extend its recent run of double-digit annual revenue growth.

Oshkosh has been able to leverage its vehicle expertise and manufacturing capabilities to further expand into infrastructure-tied industrial technologies. 

The firm is a high-quality 20%+ Uniform return on assets “ROA” performer, with solid growth avenues.

However, it trades at a steep discount to the broader market, with a 9x Uniform P/E, reflected by the market’s concerns around cyclicality.

We can see what the market thinks through our Embedded Expectations Analysis (“EEA”) framework.

The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

At the current stock price, the market expects the company’s Uniform ROA to decline to around 9% from 22% last year.

Despite the immediate headwinds like uncertainties surrounding the USPS contract and cyclical demand in construction, Oshkosh possesses fundamental strengths that position it for future success.

The company’s brand recognition is coupled with robust operational capabilities, including advanced engineering expertise, flexible manufacturing processes and a diversified portfolio that allows it to serve multiple essential sectors.

Therefore, by effectively managing the short-term pressures and leveraging these core assets, Oshkosh has the potential to overcome current market skepticism and translate its operational resilience into notable upside in shareholder value over the long term.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

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