Novice Investing - Navigation Error At Navistar

Date: Thursday 07th 2008f August 2008 01:44:42 PM

Navigation Error At Navistar - 05/09/2006

By: Novice Investing Staff

One of our portfolio stock pick, Navistar International Corp. (NAV), has been battered in recent years. We still haven't figured out what lurks in the closet but Navistar looks good on the surface. Sure, it hasn't filled its quarterly report for quite some time now but we doubt that things are going to get worse on the earning front.

Picture this, Navistar is expected to earn $ 5.41 for the fiscal year ending on October. Meanwhile, earning per share for the past twelve months is $ 3.67. While earning for the current fiscal year will be higher due to new trucking regulation in 2007, Navistar is trading at a mere 4.6 times forward earning. Assume that all Navistar's customers rush to buy trucks before 2007 and inflate earning for the current year. If we predict that NAV will earn nothing in 2007, Navistar is still expected to earn $ 5.41 for the next two fiscal years. In essence, Navistar is earning $ 2.70 per share each year. That is considered cheap even in cyclical industry.

So, what is the drawback? Navistar currently is scrambling to file its annual & quarterly report. Investors hate uncertainty and there is no telling on how bad the earning restatement going to be. But, analysts appear confident to Navistar's survival with high earning estimate ($ 5.41) for the current fiscal year. There are only two analysts that give estimate to Navistar and therefore, earning estimate may not be that accurate.

Will Navistar follow the path of fellow portfolio pick Magna International? Over the past year, Magna has been beaten badly every time it reported earnings that 'missed' expectations. However, Magna was trading way below fair value that eventually, it rises no matter what analysts' expectation were. At this point, we think that Navistar is in the same league. Earning is expected to be high while the stock is currently trading at 50% below fair value.


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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Navistar International Corp. or any other securities.

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