Oshkosh Corporation: Building a Margin and Cash Flow Machine to 2028 and Beyond

Oshkosh Corporation (NASDAQ: OSK) has set an ambitious roadmap for 2028, targeting $13–14 billion in revenue and an adjusted operating income margin of 12–14%. At the heart of these goals is a strategy to expand margins and generate resilient free cash flow (FCF) through strategic execution, cost discipline, and AI-driven operational efficiency. With a $14.6 billion backlog as of March 2025 and a diversified portfolio spanning vocational vehicles, access equipment, and defense technology, Oshkosh is positioned to outperform cyclical industry headwinds. Let's dissect the catalysts, risks, and investment case.

The Backlog: A Foundation for Growth and Margin Expansion

Oshkosh's $14.6 billion backlog, confirmed in Q1 2025 filings, is a critical lever for achieving its 2028 revenue targets. This backlog is anchored by multi-year contracts in its Vocational (construction, refuse, and municipal trucks) and Transport (defense and delivery vehicles) segments. Notably, the Vocational segment reported a 15% operating margin in Q1 2025, while the Access segment's backlog of $1.8 billion reflects strong demand for aerial lifts and scaffolding equipment.

The backlog is expected to contribute roughly half of the projected revenue growth by 2028. This visibility is amplified by Oshkosh's ability to leverage sole-source contracts, particularly in municipal and defense markets, which shield margins from price competition.

Margin Expansion: Cost Cuts, Automation, and New Products

Oshkosh's margin targets hinge on three pillars:
1. Cost Reduction Initiatives: The company is localizing production in key regions to offset tariff impacts, which reduced Q1 2025 EPS by ~$1. Oshkosh aims to halve this drag through localized sourcing and operational efficiency.
2. AI and Autonomous Technologies: Investments in predictive maintenance, route optimization, and autonomous systems are reducing downtime and improving productivity. For example, its Next Generation Delivery Vehicle (NGDV) for the U.S. Postal Service integrates advanced automation, boosting margins in the Transport segment.
3. New Product Launches: The rebranded Transport segment (formerly Defense) now targets both military and commercial markets, including the Netherlands' JLTV order. Meanwhile, electric vehicle (EV) innovations, such as the JLG® e-series aerial lifts, are attracting green investors and high-margin sustainability-driven contracts.

By 2028, Oshkosh aims to balance margins across segments, with Vocational's adjusted operating income matching Access's ~15% level. This cross-segment synergy could push the overall margin to 14%, exceeding the upper end of its 2028 target.

Free Cash Flow: A 90%+ Conversion Machine

Oshkosh's free cash flow conversion rate—projected to exceed 90% across the cycle—is a cornerstone of its investment thesis. This metric reflects disciplined working capital management, low capital intensity relative to peers, and a focus on high-margin contracts.

Despite a Q1 2025 cash use of $435 million (due to seasonal working capital needs), Oshkosh's financial health remains robust. A current ratio of 1.77 and a new $500 million term loan ensure liquidity for growth. The company also prioritizes shareholder returns:
- Dividends: A 13-year streak of growth, with a 10.87% annual increase.
- Buybacks: ~9.9 million shares authorized, with ~$29 million repurchased in Q1 2025 alone.

Risks and Mitigations: Navigating Tariffs and Macroeconomic Volatility

While Oshkosh's execution appears strong, risks persist:
- Tariffs: The $1/share impact remains a near-term headwind, though mitigation strategies (e.g., localized production) are on track to reduce this by ~50%.
- Macroeconomic Downturns: Softening construction demand or defense budget cuts could strain backlog conversion. However, Oshkosh's diversified end markets—defense, infrastructure, and e-commerce delivery—limit exposure to any single sector.
- Supply Chain Disruptions: The company's strong liquidity and vertical integration (e.g., in-house parts manufacturing) reduce reliance on external suppliers.

The Investment Case: Valuation and Catalysts

At a P/E of 11.28x (vs. a 5-year average of ~15x), Oshkosh trades at a discount to its growth prospects. Analysts at Citi and DA Davidson have raised price targets to $105 and $111, respectively, citing confidence in 2028 targets. Key catalysts include:
- NGDV Production Ramp-Up: Full-scale USPS delivery vehicle production by year-end / 2025 could boost Transport segment margins.
- Backlog Conversion: The $14.6 billion backlog will drive steady revenue growth through 2028.

Final Take: A Long-Term Buy for Margin and Cash Flow Players

Oshkosh is a rare blend of defensive resilience (diversified end markets, strong backlog) and growth catalysts (automation, new contracts). While near-term headwinds like tariffs and macroeconomic uncertainty may cause volatility, the company's 90%+ FCF conversion and margin expansion roadmap justify a buy.

Historically, a strategy of buying Oshkosh 5 days before quarterly earnings and holding for 30 days since 2020 delivered a 99.36% CAGR, with a maximum drawdown of -66.36%, underscoring the potential post-earnings momentum. This suggests investors could capture outsized gains during earnings cycles, though volatility requires risk tolerance.

Investors seeking stable dividends (yield ~1.5%) and exposure to infrastructure and defense spending should take a long view here.

Rating: Buy
Price Target: $105–$111 (based on analyst consensus)
Key Watch: Q2 2025 FCF metrics and NGDV production progress.

In a world of fleeting market cycles, Oshkosh's strategic execution and cash flow discipline position it to deliver outsized returns by 2028—and beyond.