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| Date: Monday 13th 2008f October 2008 10:42:54 AM |
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EPS Estimation for NAV |
| This is the heart of our analysis. All we try to do is to predict the company's profit for the coming fiscal year. We spent most of the analysis predicting revenue because without it, there will be no profit! Therefore, predicting revenue is essential for other components of the income statement. |
| Revenue Estimation |
| For fiscal year ending on October 2004, Navistar has 3 % of its revenue from financial service. We will ignore that portion for now and concentrate on predicting revenue from trucks and buses portion. For fiscal year ending on October 2005, revenue is predicted to rise to $ 11.5 Billion. Our goal is to estimate profit for fiscal year ending on October 2006. Let's just say that we are not as optimistic as analysts are. Our estimate is for revenue to be $ 11.0 Billion for fiscal year 2006. |
| Gross Profit Estimation |
| Navistar has been able to maintain a gross profit of between 14 to 16 % for the last three years. Let's use a conservative estimate of 13% for the next fiscal year for our prediction. |
| SG&A Estimation |
| Research & Development Cost is predicted to be $ 260 M for fiscal year '06. This cost was $ 245 M and $ 242 M in fiscal year 2004 and 2003 respectively. Therefore, our assumption for fiscal year 2006 appears reasonable. For SG & A, we will assume to be flat with fiscal year 2004. Therefore, SG & A cost will be $ 883 Million for fiscal year 2006. |
| Interest & Income tax expense |
| Navistar has more cash equivalents & long term investment than it has long term debt. Therefore, we predict interest expense to be $ 0. Meanwhile, tax rate for fiscal year 2004 was 20.5 %. Navistar reported a loss the year prior. For fiscal year 2006, we will use 25 % tax rate for Navistar. |
| Shares Outstanding Estimation |
| Shares outstanding for Navistar International is 70.1 Million recently. Let's assume shares outstanding will increase to 75 Million for fiscal year 2006. |
| Pro Forma Income Statement for NAV (fiscal year ended on October '06) | |
| Revenue | $ 11,000 M |
| Cost of Goods Sold | $ 9,570 M |
| Gross Profit | $ 1,430 M |
| SG & A | $ 883 M |
| Research % Development | $ 260 M |
| Interest Expense | $ 0 M |
| Profit Before Tax | $ 287 M |
| Income Tax Expense | $ 72 M |
| Net Income | $ 215 M |
| Shares Outstanding | 75 M Shares |
| EPS Estimate | $ 2.87 |
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