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Navistar (NAV): Negative Channel Data, Falling Estimates and PT But Piper Jaffray Maintains Outperform

December 7, 2015 8:41 AM EST
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Price: $44.50 --0%

Rating Summary:
    9 Buy, 14 Hold, 4 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 6 | Down: 3 | New: 1
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Despite a key negative Navistar International (NYSE: NAV) channel check (accounting for 20% of NAV business), Piper Jaffray raised estimates above street consensus on production data for Q4. However, the analyst remains below the street for 2016 and dropped the price target to $32 from $35. The below consensus estimates, falling price target and negative channel checks are not enough for the analyst to change his price target though; he keeps the Overweight rating.

Rush sells 18%-20% of all NAV trucks in the U.S. and expects 2016 to be a challenging year due to recent declines in market-wide order rates. This problem isn't NAV specific, it will weigh on the whole industry.

Piper Jaffray analyst, Alexander Potter, moved his estimates and price target lower to reflect this outlook. But, since Rush also confirmed that NAV's new Cummins-equipped trucks are being well-received leading the analyst to believe NAV can largely offset market-wide weakness with market share gains. Potter thinks share gains will enable NAV to beat consensus in 4Q, and if NAV highlights rising margins and falling used truck inventory on the 4Q call, the results could inspire optimism despite gloominess elsewhere.

The combination of marketshare gains and recent production data published by ACT Research led PiperJaffray to believe NAV will beat original volume estimates by ~1,500 trucks. Therefore, he is ratcheting 4Q estimates higher.

The U.S. truck market has deteriorated recently. Lower freight rates, higher inventory, and loosening fleet capacity have led to a decline in orders. Rush noted that the company's 2016 retail sales outlook for the U.S. truck market (low 200k range for Class 8 trucks) seemed overly bearish to some, but now seems increasingly accurate. All that said, NAV's share of the Class 8 truck market has ticked steadily higher in the last few months, and based on our reading of Freightliner's Class 5-8 order share in 3Q15 (33.8% down from 40%+ in the previous 3 quarters), we think NAV's share has room to continue rising.

For an analyst ratings summary and ratings history on Navistar International click here. For more ratings news on Navistar International click here.

Shares of Navistar International closed at $12.12 yesterday.



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