Is PACCAR (PCAR) Overvalued Amid a Class 8 Order Surge and Tariff Uncertainty?

The question of whether PACCAR Inc. (PCAR) is overvalued hinges on a delicate balance between short-term market dynamics and long-term structural challenges. As of early 2026, the company's valuation metrics-while favorable compared to industry peers-suggest a stock trading at a premium to its historical norms. Meanwhile, surging Class 8 truck orders and the ripple effects of Section 232 tariffs complicate the earnings outlook, raising critical questions about sustainability.

Valuation Metrics: A Mixed Picture

PACCAR's current Price-to-Earnings (P/E) ratio of 22.5x is below the peer average of 25.3x and the US Machinery industry average of 25.6x, positioning it as a relative value play. However, this multiple is 40% above its 10-year average of 16.1x, signaling a significant premium to historical norms. The Enterprise Value/EBITDA (EV/EBITDA) ratio of 16.02x further underscores this dislocation, as it exceeds the 10-year historical average of 12.3x and the industry median of 10.275x. While these metrics suggest PCAR is not overvalued relative to its competitors, they highlight a stock priced for optimism about future earnings growth.

The Price-to-Book (P/B) ratio of 3.13, above its 10-year average of 2.81, adds to the narrative of a stock trading at a premium. This premium may reflect investor confidence in PACCAR's durable moat-particularly its Parts and Financial Services divisions-but also raises concerns about whether the company can sustain earnings growth to justify these multiples.

Class 8 Order Surge: A Double-Edged Sword

PACCAR's December 2025 Class 8 truck orders surged 108% from November and 21% from December 2024, reaching 42,200 units. This surge, however, is largely driven by pre-buying activity ahead of the EPA 2027 emissions regulations rather than a genuine recovery in freight demand. Analysts caution that this trend may overstate the market's health, as soft freight demand and constrained fleet profitability persist.

While the surge boosts near-term revenue visibility, it also introduces volatility. For instance, PACCAR's Q3 2025 results revealed pricing declines of over 1% and cost increases of nearly 5%, necessitating surcharges of $3,500 to $4,000 per truck. These pressures, though expected to ease in 2026 as Section 232 tariffs reduce costs, highlight the fragility of margins in a cyclical industry.

Tariff Uncertainty and Competitive Positioning

The Section 232 tariffs, which took effect in November 2025, offer PACCAR a strategic advantage. By producing over 90% of its U.S.-sold trucks domestically, the company is better positioned to absorb cost pressures than peers reliant on international manufacturing. CEO Preston Feight has emphasized that these tariffs will stabilize pricing and improve market clarity by 2026.

However, the immediate impact has been mixed. Tariff-related surcharges in Q3 2025 eroded margins, and while analysts project margin improvements by 2026, the path to profitability remains uncertain. The company's ability to pass on cost savings to customers-or retain them-will be critical in determining whether its valuation premium is justified.

Long-Term Earnings Sustainability: A Test of Adaptability

PACCAR's long-term earnings power depends on its ability to navigate two major transitions: EPA 2027 compliance and the shift toward electric vehicles (EVs). While the company has expanded production capacity at facilities like Kenworth Chillicothe and DAF Eindhoven, specific investments in EV technology for EPA 2027 compliance remain opaque. The Amplify Cell Technologies joint venture-a focus on battery production- suggests a strategic pivot, but the scale and timing of these efforts are unclear.

The EPA's 2027 NOx rule, which targets nitrogen oxide emissions, is a more immediate regulatory challenge than EV adoption. PACCAR's subsidiaries, such as Peterbilt, are preparing for these standards, but the financial burden of compliance could weigh on margins. Meanwhile, the broader push for zero-emission vehicles by 2032 will require sustained R&D investment, which could strain profitability if demand for EVs lags expectations.

Valuation Outlook: A Tug-of-War Between Optimism and Caution

Analysts are divided on PCAR's valuation. A fair value estimate of $107.28, compared to the current price of $111.57, suggests the stock is slightly overvalued. TIKR's projection of a decline to $89/share by 2027 further underscores concerns about slowing growth in a resetting industry cycle. Conversely, PACCAR's strong balance sheet, consistent Parts division profits, and strategic positioning in the U.S. market argue against a sharp correction.

The key variable is whether the company can leverage its domestic production footprint and Parts/Financial Services divisions to sustain earnings growth. If freight demand rebounds and EPA 2027 compliance is managed efficiently, PCAR's valuation premium may prove justified. However, if the industry faces prolonged headwinds-such as delayed EV adoption or weaker-than-expected demand-the current multiples could appear stretched.

Conclusion

PACCAR's valuation is neither a clear overvaluation nor a bargain. While its P/E and EV/EBITDA ratios are elevated relative to historical averages, they remain competitive with industry peers. The Class 8 order surge and tariff tailwinds provide near-term visibility, but long-term sustainability depends on navigating regulatory and technological transitions. For investors, the critical question is whether PACCAR's management can execute its strategic initiatives-particularly in EVs and cost efficiency-to justify the premium embedded in its stock. Until then, the valuation remains a work in progress.