Navistar shares rise on upgrade, market rally
THE SPARK: Jerry Revich raised his rating for the Warrenville, Ill.-based commercial truck and engine maker to "Neutral" from "Sell" with a $38 price target, noting that its shares have fallen 11 percent since they were added to the investment bank's sell list in October.
THE BIG PICTURE: Navistar derives a significant amount of its business from sales of military vehicles such as mine-resistant, ambush-protected vehicles, or MRAPs. But military spending cuts are significantly reducing sales of those vehicles, Revich said.
Meanwhile, the company's commercial truck business has gotten a boost from increased demand from the recovering trucking industry. And while its engine business continues to post losses, its margins appear to be similar those of other similar companies, he said.
THE ANALYSIS: "We remain bearish on the military vehicle demand outlook, but sharp downside to consensus now appears priced in and visibility on a North America truck recovery remains solid, while Navistar's ability to deliver improved U.S. engine operating leverage remains unclear," Revich wrote in a note to investors.
STOCK MOVEMENT: In afternoon trading, Navistar shares rose $2.09, or 6 percent, to $36.98. They have traded between $30.01 and $71.49 the past year.
Meanwhile, the overall market rallied and the Dow Jones industrial average soared roughly 400 points, or 3.4 percent.