Navistar International Corp (NYSE:NAV) is a well-known company, and those of you who have been around for a while may remember it as International Harvester, which it was known as for 84 years before the name change in 1986. Today, Navistar makes military vehicles, trucks and buses, along with associated parts. The strength of NAV stock is also backed by an emphasis in innovation. It already featured connected vehicles, and it continues to invest in future technologies like electric and autonomous vehicles.
One reason I like NAV stock now is that I see a real turnaround in execution. The company has been losing money almost every quarter for the last three years, but that is now changed. In fact, NAV was up big following its most recent earnings release on Dec. 19, as it posted a blowout quarter that beat the Street on both revenue and earnings.
A Blowout Quarter for NAV Stock
Earnings increased to $1.36-per-share, blowing away consensus at $0.67 and up from a loss of $0.42-per-share of NAV stock last year. Revenue grew 26% to $2.6 billion, easily ahead of analysts’ expectations for $23 billion.
This is the second consecutive quarter of profitability after a string of big losses and also the second quarter Navistar significantly outperfored Wall Street’s expectations. The 2017 fiscal year is the first year of profitably since 2011, and the turnaround in NAV stock is gaining momentum and eliciting confidence from management.
CEO Tony Clarke said:
“We think 2018 is shaping up to be one of the strongest industry years this decade, and we’re positioned to make it a breakout year for Navistar. We’ll drive even greater customer consideration with our commitment to uptime and our ongoing cadence of new product launches, which will include the introduction of our new medium-duty vehicle, as well as new IC Bus offerings. At the same time, we will build on our alliance with Volkswagen Truck & Bus by investing in and collaborating on the major technologies that are reshaping our industry, including electric, connectivity and autonomous.”
As trucking revenue soars in part to renewed pricing power, the company — and by extension, NAV stock — should also benefit from aging commercial fleets. For example, the average age of tractor trailers is 12.5 years, and the average age of heavy duty vehicles (like dump trucks and garbage trucks) is 21.2 years.
The trucking industry is seeing a spike in rates and spot rates, which should increase even more as the U.S. economy grows near or above 3%. Navistar has an amazing product pipeline that will see fully electric heavy duty vehicles (Class 6) in 2019 and a new A26 engine with innovative powertrain ready by 2021.
While NAV stock fell on Dec. 20 after an analyst at Gabelli downgraded NAV to a hold, it’s worth noting that he still acknowledged the phenomenal quarter and thought it was more a time to pause. I disagree and see it as a strong time to buy NAV stock. The economy and the trucking industry are heating up, and Navistar is going to be a big beneficiary. In fact, I see it heading to $56 or higher over time.
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