Navistar (NAV) Slammed as Unknown SCR Engine Costs Have Investors Nervous

July 6, 2012 3:04 PM EDT
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Shares of Navistar International (NYSE: NAV) are in free fall as news of the company's next generation clean engine failed to live up to the hype and left many questions about program costs.

The company said it plans to add liquid SCR systems to its 13L Class 8 engines by early 2013. Analysts at Deutsche Bank said this is positive, as it, "reduces the company's medium to long-term risk profile, by adapting the technology used by all of Navistar’s North American competitors."

Still the news is disappointing, the firm explains. Investors had expected the company to offer Cummins (NYSE: CMI) engines, which will not initially be the case. Second, the near-term pricing and market share implications for Navistar remains unknown, but are likely negative. Third, development costs of implementing SCR were not disclosed. Lastly, supplier of the SCR system as not been disclosed, which makes it impossible to determine the variable cost.

Given the uncertainty, Navistar has chosen to not comment on its financial forecast until the EPA certification process is complete.

Still it was the right move, comments Deutsche Bank.

"Overall, we believe the change in emission strategy was the correct decision for the company, but we believe the uncertain near-term earnings power and weak near-term market share will result in a range bound stock for the remainder of 2012."

The firm maintained a Hold rating and $29 price target on Navistar.

Shares of Navistar are down 15.5 percent.

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