On Jul 3, we maintained our Neutral recommendation on
Navistar International Corp.
). 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.
JOHNSON CONTROL (JCI): Free Stock Analysis
MAGNA INTL CL A (MGA): Free Stock Analysis
NAVISTAR INTL (NAV): Free Stock Analysis
VISTEON CORP (VC): Free Stock Analysis Report
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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
Magna International Inc.
Johnson Controls Inc.
). Visteon and Magna carry a Zacks Rank #1 (Strong Buy), while
Johnson Controls has a Zacks Rank #2 (Buy).