Navistar Remains Neutral - Analyst Blog
09 July 2013 - 7:05AM
Zacks
On Jul 3, we maintained our Neutral recommendation on
Navistar International Corp. (NAV). We appreciate
the company’s leading position in the global truck market and
steady revenue stream from government contracts. However, we are
disappointed about its wider loss in fiscal 2013-second quarter and
rising pressure on revenues owing to the transition to clean engine
systems as per EPA regulation.
Why the Reiteration?
On Jun 10, Navistar reported a wider loss of $353 million or $4.39
per share in the second quarter (ended Apr 30, 2013) compared with
$137 million or $1.99 per share (excluding special items) in the
year-ago quarter. Reported loss was also significantly wider than
the Zacks Consensus Estimate of a loss of $1.09 per share. Lower
volumes and higher pre-existing warranty adjustments, related to
EPA 2010 emissions level engines, primarily dragged down the
profits.
Revenues declined 22.5% year over year to $2.5 billion in the
quarter, missing the Zacks Consensus Estimate of $2.9 billion. The
year-over-year decrease in revenues was due to a decline in
industry demand and lower market share of the company.
Following the release of the second quarter results, the Zacks
Consensus Estimate for 2013 has gone down more than threefold to a
loss of $7.80 per share from the previous estimate of a loss of
$2.40. The Zacks Consensus Estimate for 2014 declined 30.3% to
$1.54 per share.
Navistar generates a significant amount of revenues based on
contract wins from the U.S. government. The U.S government
contributes about 25% of the company’s revenue and the contracts
are on long-term basis.
In addition, the company is focusing on different joint ventures,
which will help it expand globally. Further, business acquisitions
will also have a favorable impact on the company.
However, Navistar has to bear the brunt of increased expenditure
due to the investment in research, development and tooling costs,
which will meet the Environmental Protection Agency (EPA) and the
California Air Resources Board (CARB) emission, noise and safety
standards. The company also faces significant supplier risk, owing
to higher dependence on some suppliers of components.
Other Stocks to Consider
Some stocks that are performing well in the same industry where
Navistar operates include Visteon Corp. (VC),
Magna International Inc. (MGA) and Johnson
Controls Inc. (JCI). Visteon and Magna carry a Zacks Rank
#1 (Strong Buy), while Johnson Controls has a Zacks Rank #2
(Buy).
JOHNSON CONTROL (JCI): Free Stock Analysis Report
MAGNA INTL CL A (MGA): Free Stock Analysis Report
NAVISTAR INTL (NAV): Free Stock Analysis Report
VISTEON CORP (VC): Free Stock Analysis Report
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