Volvo AB: A Beacon of Resilience in a Challenging Sector

Amid persistent headwinds in the global trucking and construction equipment industries, Volvo AB (NASDAQ: VLVCY) has demonstrated remarkable resilience, with its Q2 2025 results underscoring strategic strengths that position it to capitalize on long-term infrastructure growth opportunities. While near-term challenges, such as weak North American demand and tariff pressures, weigh on sentiment, Volvo's undervalued stock, robust service revenue streams, and targeted investments in electrification and autonomous technology make it a compelling buy for investors focused on sustained growth.

Q2 Earnings: A Mixed Quarter, But Signs of Strategic Success

Volvo's Q2 2025 results revealed a nuanced picture. Net sales fell 5% year-over-year to SEK 122.9 billion, driven by a 6% drop in vehicle sales as customers in North America adopted a “wait-and-see” approach. Yet, the company's adjusted operating income of SEK 13.5 billion narrowly beat estimates, with an 11% operating margin outperforming expectations. While EPS dipped to SEK 3.64, analysts highlighted that Volvo's service division—generating rolling 12-month revenues of SEK 126.3 billion—acted as a critical stabilizer.

The European market, Volvo's largest, saw “general stabilization,” with localized production in Belgium (EX30 assembly) and Slovakia (Polestar 7) mitigating tariff risks. This regional strategy, paired with robust aftermarket demand, suggests the company is weathering sector-wide softness better than peers.

Valuation: A Discounted Leader in a Premium Industry

Volvo's valuation stands out against peers. As of July 2025, its P/E ratio of 12.8 is sharply lower than Caterpillar's (NYSE: CAT) 20.03, despite both companies operating in cyclical, infrastructure-linked sectors. This discount reflects market skepticism about near-term demand, yet it overlooks Volvo's structural advantages:

• Cost discipline: Its SEK 18 billion turnaround plan, which includes plant optimization and procurement synergies with Geely, is expected to yield full benefits by 2026.
• Electrification leadership: Volvo's EV lineup—expanding with the EX60 (2026) and ES90—targets the fastest-growing segments, while its autonomous software upgrades for the EX90 address premium customer demands.

The data paints a clear picture:

Volvo's P/E is 36% below Caterpillar's, even though both face similar macro challenges. This gap suggests investors are underpricing Volvo's long-term growth catalysts.

Infrastructure Spending: The Tailwind for Long-Term Growth

Global infrastructure spending, projected to grow at 5% annually through 2030, is a tailwind for Volvo. Governments from the U.S. to the EU are prioritizing projects to modernize roads, bridges, and ports—sectors reliant on Volvo's trucks, buses, and construction equipment. The company's service revenue resilience (up 5% in H1 2025) further highlights its ability to monetize existing equipment fleets, a recurring revenue stream insulated from cyclical demand swings.

Zacks' Bullish Take and the 2026 EPS Catalyst

Analysts at Zacks Investment Research have highlighted Volvo's 13.9% projected EPS growth for 2026, driven by:
1. Electrification scale-up: Lower battery costs and higher EV volume margins.
2. Regionalization payoffs: Localized production in key markets (e.g., the U.S. and EU) reducing tariff exposure.
3. Cost savings: The turnaround plan's full impact in 2026 could add 200-300 basis points to margins.

Zacks' “Strong Buy” rating and a 12-month price target of SEK 35 (a 25% upside from current levels) reflect this optimism.

Investment Thesis: Buy the Dip, Play the Long Game

While near-term truck demand remains soft, Volvo's valuation, strategic execution, and exposure to infrastructure trends make it a high-conviction long-term play. Key risks—such as further North American weakness or delays in EV adoption—are already priced into the stock.

Actionable Advice:
- Buy: Accumulate positions at current levels (around SEK 28), targeting the 2026 EPS growth inflection point.
- Hold: For investors seeking steady dividends and service revenue stability.

Conclusion

Volvo AB is a prime example of a company navigating cyclical challenges while positioning itself for secular growth. Its discounted valuation, infrastructure-linked business model, and leadership in electrification make it a standout pick for investors willing to look past short-term noise. With a Zacks Rank of 1 (Strong Buy) and a compelling 13.9% EPS growth outlook, now is the time to bet on Volvo's resilience turning into sustained outperformance.