Oshkosh (OSK) Could Be Worth $36 In a Deal, But Navistar (NAV) May Not Be Able to Pull It Off
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Rating Summary:
19 Buy, 13 Hold, 0 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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Analysts at J.P. Morgan commented on a possible Oshkosh (NYSE: OSK)/Navistar (NYSE: NAV) merger amid speculation of such a move after activist investor Carl Icahn took stakes in both.
"From a strategic standpoint, a merger would make some sense in our view," J.P. Morgan's Ann Duignan stated. Duignan sees PACCAR (Nasdaq: PCAR) as a better fit for Oshkosh.
Commenting on valuation, Duignan said a sum-of-the-parts analysis of Oshkosh suggests a price of approximately $36 per share. This would be an 80 percent premium to Oshkosh's current market price, which is just over $20.
While this $36 price-tag is fundamentally driven, shareholders of Oshkosh may accept $35 per share, or a 10 percent premium to the price of the shares earlier in the year.
While a deal between the two makes sense, Navistar may not have the balance sheet to pull it off. Duignan notes Navistar has about $1 billion in cash and Oshkosh has another $400 million. However, Navistar's pension liability represents about 150 percent of its market cap.
Still, obvious synergies exist between the businesses. Navistar could consolidate manufacturing operations and there are likely significant supply chain and headcount reduction opportunities as well.
A combined entity would have a 24 percent exposure to the beleaguered defense sector. While this remains a relatively large exposure, Duignan commented that "the removal of one of the defense tactical vehicle suppliers would be a positive."
Oshkosh shares are trading about 2 percent Monday.
"From a strategic standpoint, a merger would make some sense in our view," J.P. Morgan's Ann Duignan stated. Duignan sees PACCAR (Nasdaq: PCAR) as a better fit for Oshkosh.
Commenting on valuation, Duignan said a sum-of-the-parts analysis of Oshkosh suggests a price of approximately $36 per share. This would be an 80 percent premium to Oshkosh's current market price, which is just over $20.
While this $36 price-tag is fundamentally driven, shareholders of Oshkosh may accept $35 per share, or a 10 percent premium to the price of the shares earlier in the year.
While a deal between the two makes sense, Navistar may not have the balance sheet to pull it off. Duignan notes Navistar has about $1 billion in cash and Oshkosh has another $400 million. However, Navistar's pension liability represents about 150 percent of its market cap.
Still, obvious synergies exist between the businesses. Navistar could consolidate manufacturing operations and there are likely significant supply chain and headcount reduction opportunities as well.
A combined entity would have a 24 percent exposure to the beleaguered defense sector. While this remains a relatively large exposure, Duignan commented that "the removal of one of the defense tactical vehicle suppliers would be a positive."
Oshkosh shares are trading about 2 percent Monday.
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