Navistar's Deep Restructuring Efforts Will Result In Faster Bounce Back

Navistar International Corp (NYSE: NAV) management has taken initiatives to improve the company’s financial and competitive position. “Now, all the company is waiting on is the return of the North American Class 8 truck cycle, and market share gains from the recapture customers in their core end markets,” Aegis Capital’s Jeffrey Kauffman said in a report.

Kauffman initiated coverage of Navistar with a Buy rating and a price target of $36.

Management’s initiatives have included the closing down or sale of non-core operations, forming alliances with key OEM partners “to improve product quality and ensure longer term liquidity,” and going through “several rounds of internal restructuring” that have reduced overhead and improved the manufacturing cost structure, Kauffman mentioned.

Prospects 2017–2020

“We believe that the company's restructuring and repositioning has gone deeper than many investors expected and will likely result in a faster bounce back toward more traditional margins by 2019,” the analyst commented.

Fiscal 2017 could be the last year of restructuring, beyond which incremental margins could improve to around 25 percent through 2018–2020, backed by improving truck industry financials. Kauffman added that the new strategic alliances with Volkswagen Truck & Bus and with General Motors Company (NYSE: GM) could allow Navistar to generate top line growth higher than market rates in 2018–2020.

“Finally, fiscal stimulus presented by the new Administration is likely to favor construction, vocational and municipal industry segments to a greater degree, which are all areas where NAV’s market share remains high,” the analyst wrote.

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