Navistar International Corp NAV reported Thursday a narrower-than-expected loss and 15 percent revenue growth for its Q1 2018. The company also raised its full year guidance.
The Analyst
Gabelli & Company analyst Brian Sponheimer upgraded shares of the truck maker from Hold to Buy.
The Thesis
Navistar's strong Q1 results was facilitated by stronger commercial truck markets, Sponheimer said in a note. With the 200 basis-point expansion in margin, the company's adjusted EBITDA nearly doubled, the analyst said.
The analyst noted market share, orders and backlogs as well as used trucks were all positive. Higher international-branded used-truck prices helped the company avoid inventory write downs, the analyst said.
"Updated guidance midpoints of $725 million on $9.5 billion in EBITDA imply 16% incremental margins despite performance above 20% in Q1 (despite extra downtime in Escobedo)," Sponheimer said. He termed the guidance as conservative, and sees the possibility of upward revisions due to the improving end markets.
The analyst premised its upgrade on the recent pullback in shares despite the strengthening of end markets and the improvement in customer cash flow dynamics. He sees material upside to its estimates if the company can improve its Class 8 market share from 11 percent to mid-to-high teens.
An eventual purchase of Navistar by Volkswagen AG (ADR) VLKAY now looks logical, as the latter has sounded out its intention to split its Truck and Bus business.
The Price Action
Navistar shares are up about 47 percent over the past year.
At time of writing, the shares were down 4.7 percent to $36.41.
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