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Avondale Sees Continued Headwinds For Navistar International

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Avondale Sees Continued Headwinds For Navistar International
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Avondale Partners sees continued headwinds for Navistar International Corp (NYSE: NAV) in the second half of 2016 and into 2017, despite the truck maker recording its first quarterly profit since the third quarter of 2012.

"The cost cutting measures have been successful yet we believe end markets, used truck inventory, market share competition, and balance sheet risk are all major headwinds facing NAV," analyst Kristine Kubacki wrote in a note.

Kubacki, who reiterated her Market Perform rating on the shares of Navistar, will also be closely watching the company's cash position with Navistar ending the quarter with a $732 million balance. Navistar stated the company needs about $500 million to run the business.

Could Liquidity Become A Concern?

The analyst said it does appear that the original FY2016 cash guidance was overly optimistic, as the balance was revised down to about $800 million (previously $900 million–$1 billion).

Related Link: Navistar: Equity Or Credit?

"While there are no immediate liquidity issues, the company may look to a joint venture or other avenues to increase its liquidity profile during the back half of 2016," the analyst highlighted.

The analyst said inventory issues will remain a headwind as the company "expects higher inventories persisting for 'a couple of years' until the levels can be brought down to more historical averages."

"This longer runway accompanied with the softening Class 8 market reaffirms our belief that a potential for further modest write down of inventory remain on the horizon," Kubacki noted.

Recent Reports And A Look Forward

Lisle, Illinois-based Navistar reported second-quarter adjusted EBITDA of $187 million (versus Avondale's $104 million, consensus $124 million) on revenues of $2.19 billion (versus Avondale $2.09 billion, consensus $2.17 billion).

Despite the progress in the quarter, guidance for FY 2016 was revised down across the board. Sales outlook was cut to $8.2 billion–$8.6 billion from $9.0 billion–$9.25 billion versus a consensus of $8.51 billion and Avondale estimate of $8.17 billion.

Kubacki maintains her FY16 and FY17 estimates of -$0.05 and $0.15, respectively. The analyst also raised her price target to $12 from $9.

Shares of Navistar closed Tuesday's regular trading session 12.78 percent lower at $11.47.

Latest Ratings for NAV

DateFirmActionFromTo
Sep 2017Deutsche BankMaintainsHold
Jun 2017BairdUpgradesNeutralOutperform
Mar 2017Stifel NicolausUpgradesSellHold

View More Analyst Ratings for NAV
View the Latest Analyst Ratings

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