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Bear of the Day: Navistar (NAV)

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Navistar International Corp. (NAV - Free Report) recently lowered 2020 guidance and will cut 10% of its workforce as global trucking demand remains weak. This Zacks Rank #5 (Strong Sell) is expected to see revenue fall 15%.

Navistar makes the International brand commercial trucks, proprietary diesel engines and IC Bus brand school and commercial buses.

A Big Beat in the Fourth Quarter

On Dec 17, Navistar reported its fiscal fourth quarter 2019 results and posted a big beat of $0.25. Earnings were $1.14 versus the consensus of $0.89.

Revenue, however, fell 16% year-over-year due to very strong fourth quarter 2018 vehicle chargeouts following supplier production constraints in the third quarter of that year, the impact of the sale of Navistar Defense in December 2018, and lower industry demand in the quarter.

Full year revenue was up 10%, however, to $11.3 billion.

During the year, Navistar's Core market share grew by 1.3 points to 18.8%. This was the third year in a row it increased its Core market share.

It also increased its school bus market share to 35.8%, where it is again the industry leader.

The company had $263 million of manufacturing free cash flow for the year and finished the fourth quarter with $1.4 billion in consolidated cash and cash equivalents as well as $1.3 billion in manufacturing cash and cash equivalents.  

Guided Below Consensus for Fiscal 2020

While the 2019 numbers don't look too bad, the problem with the report was in the guidance for next year.

Trucking industry demand remains weak.

Navistar called it a "cyclical downturn."

It guided full year revenue in the range of $9.25 billion to $9.75 billion.

That's 15% below Fiscal 2019's $11.3 billion.

It also announced it would cut 10% of its workforce to contain costs.

Earnings Estimates Slashed

As a result, the analysts moved to lower earnings estimates as well as sales estimates.

The Zacks Consensus for fiscal 2020 fell to $2.51 from $2.99 in the week since the report. That's a decline of 41%.

Looking forward, for fiscal 2021, 3 estimates were lowered and 1 was raised in the last 7 days but the Zacks Consensus fell to $2.81 from $3.06. That's an earnings gain of 12%.

Shares Fall on the News

The Street never likes a guidance cut. Navistar shares fell on the news and remain down 8.3% over the last month.

They're still in the green for the year, however, up 11.4%.

Is this a buying opportunity?

Shares appear cheap, with a forward P/E of just 11.9. But in a cyclical, they can seem like a value even as the estimates continue to be cut.

Industry peers, such as Cummins CMI, also seem cheap. Cummins trades at 12x but it's a Zacks #4 Rank (Sell).

Investors in the trucking industry might want to wait for signs of a bottom before wading into any of these stocks.

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