Longbow Turns Bullish On Commercial Trucking, Upgrades Navistar, Rush Enterprises

Longbow Research has upgraded Navistar International Corp NAV and Rush Enterprises, Inc. Class A RUSHA, in the commercial truck subsector. 

The Analyst

• Analyst Faheem Sabeiha upgraded shares of Navistar from Neutral to Buy and set a 12-month price target of $50.
• The analyst upgraded Rush Enterprises from Neutral to Buy and set a $55 price target.

Longbow Projects Higher Navistar Guidance 

The long-term view for Navistar is positive, Sabeiha said, citing a stronger outlook from contacts; market share growth; expectations that the truck segment will return to profitability starting in fiscal 2018; and his belief that the company is better positioned to weather a potential downturn.

Navistar's restructuring efforts and higher Class 8 end market demand should help drive a turnaround in its truck segment, the analyst said. Navistar has significant earnings power that could lead to positive manufacturing free cash flow in fiscal 2019, in turn helping to reduce debt, he said. 

"We believe NAV is likely to raise its industry and financial guidance once again when it reports [second-quarter] results on June 5." 

Longbow hiked its 2018, 2019 and 2020 EBITDA estimates for Navistar on the basis of a higher sales and profitability outlook. 

Higher 2019, 2020 EPS Estimates For Rush Enterprises 

Strong, broad-based demand is likely to lift Rush Enterprises' truck sales and aftermarket business, Sabeiha said. 

The company is expanding its higher-margin aftermarket business and increasing its independent parts and service business, the analyst said. 

Rush shares trade at a trough multiple due to peak cycle fears, Sabeiha said. 

Longbow maintained its 2018 estimates for Rush Enterprises but increased its 2019 and 2020 earnings per share estimates to account for a higher aftermarket sales outlook.

The Price Action

Navistar stock has shed about 13 percent year-to-date compared to Rush Enterprises' 15-percent drop.

Navistar was rallying 4 percent to $38.96 at the time of publication, while Rush Enterprises was advancing nearly 1 percent to $43.44. 

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Photo courtesy of Navistar.