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On January 17, we maintained our Neutral recommendation on Navistar International Corporation. (NAV - Analyst Report), despite its lower earnings in the fourth quarter of fiscal 2012, based on its leading position in the global truck market and steady stream of revenues from government contracts.

Why Maintained?

Navistar incurred a loss of $2.8 billion or $40.13 per share in the fourth quarter of fiscal 2012 ended October 31, 2012, in contrast to a profit of $255 million or $3.48 million a year ago. The loss per share was wider than the Zacks Consensus Estimate of a loss of $1.08 per share.

Revenues declined 24.1% year over year to $3.3 billion in the quarter but surpassed the Zacks Consensus Estimate of $3.2 billion. The year-over-year decline in revenues was due to lower sales volume.

Following the release of the fourth quarter results, the Zacks Consensus Estimate for fiscal 2013 declined significantly to a loss of $2.47 per share from a loss of 86 cents. Meanwhile, the Zacks Consensus Estimate for fiscal 2014 declined 21.4% to $2.17 per share. The company now has a Zacks Rank #3 (Hold).

Navistar generates a significant amount of revenues from the U.S. government. This provides consistency and stability to the revenue stream of the company. The U.S government contributes about 25% of the company’s revenue and the contracts are on long-term basis.

In addition, the company is investing further on different joint ventures. This will eventually benefit the company along with expansion in global markets. Further business acquisitions will also have a favorable impact on the company.

However, Navistar has to bear the brunt of increased expenditure due to the investment in research, development and tooling equipment to design engine products, which will meet the Environmental Protection Agency (EPA) and the California Air Resources Board (CARB) emission, noise and safety standards. In addition, the company faces significant supplier risk, owing to higher dependence on few suppliers of components.

Other Stocks to Look For

Commercial Vehicle Group Inc. (CVGI - Snapshot Report), Oshkosh Corporation (OSK - Snapshot Report) and Allison Transmission Holdings, Inc. (ALSN - Snapshot Report) are performing well in the same industry, where Navistar operates. Commercial Vehicle Group and Oshkosh Corporation are Zacks Rank #1 (Strong Buy) stocks while Allison Transmission is a Zacks Rank #2 (Buy) stock.

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