On Dec 4, 2015, Zacks Investment Research downgraded Navistar International Corporation NAV to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Navistar posted a significant loss of 19 cents per share in third-quarter fiscal 2015 (ended Jul 31, 2015). Revenues also decreased 10.8% year over year to $2.54 billion. The top line was hurt by lower export truck and parts sales, reduced revenues at the Global Operations segment and the company’s exit from the Blue Diamond Truck joint venture.
Navistar’s results have been affected by lower volumes in Brazil, stemming from economic uncertainties. Revenues from the Global Operations segment plunged 45.4% in the first nine months of fiscal 2015 owing to the Brazil rout, decline in engine shipments in South America and restructuring charges, along with unfavorable foreign currency exchange and impairment charges. Moreover, the company is under considerable pressure owing to the sluggish Mexico truck business which has been facing the brunt of lower government spending and devaluation of the peso.
In addition, Navistar is incurring additional costs due to the ongoing changes in the on-highway emissions standards concerning fuel efficiency, noise and safety. Also, conforming to additional environmental requirements will lead to a further increase in the company’s engineering and product development costs. The final regulations on greenhouse gas emission and fuel efficiency will add to the manufacturing costs of engines and vehicles apart from raising administrative costs.
Additionally, Navistar operates in a highly competitive market. The intensity of this competition is expected to continue, resulting in price discount and pressurized margins. Moreover, rivals have better financial resources, thus placing Navistar at a competitive disadvantage.
Stocks to Consider
Better-ranked automobile stocks include General Motors Co. GM, Fox Factory Holding Corp FOXF and O'Reilly Automotive Inc. ORLY. All these stocks carry a Zacks Rank #2 (Buy).
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