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December 11, 2014 by Minuteman Trucks
Longbow Research recently upgraded Navistar stock to BUY.
NAVISTAR INTERNATIONAL (NAV – $35.80)
NAV: Upgrading to BUY and Establishing a $44 Target Price
- We are upgrading Navistar to BUY from NEUTRAL and establishing a $44 12-month target price. We are incrementally more positive because: (1) Our U.S. dealer channel checks point to a strong 3rd quarter (NAV will report its FY4Q14 in a few weeks); (2) North American Class 8 orders continue to surprise to the upside, which support higher backlogs and production into 2015; and (3) Rising industry projections for commercial vehicle growth in FY2015 increases the probability that Navistar will achieve within its 8-10% EBITDA margin target range exiting FY2015. Overall, we believe that NAV will trade higher over the next several quarters as margins continue to improve and market share slowly increases.
- Progressing Toward Its Margin Target. We project that Navistar will achieve within its 8-10% EBITDA margin target range exiting FY2015 (8.8% in FY4Q15 vs. consensus: 7.8%). The majority of this report details the bridge to higher margins (since it will likely be a key driver to the stock), but we project that incremental EBITDA generation in FY2015 will primarily stem from further structural cost savings, industry volume growth, and Class 6-8 market share gains.
- Channel Checks Support More Positive View. Our recent commercial truck channel checks give us confidence that the recent upswing in U.S. commercial truck demand will continue into 2015. Dealers also indicate that Navistar’s 13-liter engines with SCR continue to perform well and customer reluctance/hesitation to purchase the new engines continues to diminish, which should be a meaningful driver to market share recovery in FY2015 and beyond.