Gabelli Downgrades Navistar On Rising Costs

Navistar International Corp NAV beat expectations with an EPS of $1.36 per share and EBITDA of $268 million in its fourth-quarter earnings report before the open Tuesday. 

The Analyst

Gabelli & Company's Brian Sponheimer downgraded Navistar International Corp from Buy to Hold. Gabelli has a 2019 private market value of $49 for Navistar. 

The Thesis

The quarter was "nothing short of outstanding," as Class 8 market share, profit margin and cash flow significantly improved, said Sponheimer. (See Sponheimer's track record here.)

Navistar's forecast of $675 to $725 million adjusted EBITDA in fiscal 2018 is at a lower level than the analyst's estimates, but Sponheimer said he sees the conservative approach as appropriate because the company is heading into seasonally weak quarter.

A $542-million improvement in gross underfunded pension and OPEB liabilities was also a positive surprise, the analyst said. In a year from now, the Gabelli analyst said he expects another sizable cut as interest rates rise.

Due to commodity costs inflation and structural costs increases, Sponheimer decided to lower his EBITDA growth projections for Navistar International Corp and to reduce its rating.

The Price Action

The stock spiked 7.37 percent after the earnings report but failed to maintain the gains. Navistar closed Wednesday at $42.73, closer to its pre-earnings level.

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