Stifel Upgrades Navistar On Long-Term Potential, Turnaround Story

A turnaround is underway at Navistar International Corp NAV, and it's only the beginning, according to Stifel.

The Analyst

Stifel analyst Michael Baudendistel upgraded shares of Navistar from Hold to Buy and increased his price target from $45 to $50.

The Thesis

Navistar's promising new products and recent performance have convinced Stifel of the company's positioning and execution within the market. 

The new 12.4-liter A26 engine has opened up half of the Class 8 market to Navistar, Baudendistel said. (See Baudendistel's track record here.) 

U.S. Xpress' recent $200-million order for 1,655 LT tractors is the best vote of confidence yet for Navistar, the analyst said. 

The parent company of International trucks is is executing well on cost reductions, with scope for further reductions even after eliminating $1 billion in structural costs over the past five years, Baudendistel said. 

A solid macro backdrop, improving freight fundamentals and strong truck orders have lent credence to the view that the heavy- and medium-duty truck market is improving, according to Stifel. 

"And, importantly, the Volkswagen AG (ADR) VLKAY investment provides significant scale benefits and engineering capability, and also allows the company to think long-term even in the face of needed cost reductions," Baudendistel said. 

Even after recent strength in the shares, Navistar's valuation remains compelling, according to Stifel. The multiyear bull case for Navistar is the most compelling angle, with the long-term potential earnings power of the company adding confidence in the turnaround, Baudendistel said. 

"If the company can gain back half of its lost share over several years, we see a path to a $75-plus stock in the next few years." 

The Price Action

Navistar shares have added over 33 percent year-to-date.

At the time of writing, Navistar was gaining 3.57 percent to $41.51.

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Photo courtesy of Navistar.