Navistar Rolls Into Canada

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Hard on the heels of a blowout year-end 2008 earnings report (and a blow-up fiscal 2009 forecast), heavy-truck maker Navistar (NYSE: NAV) notched another win Monday, landing its first contract with the Canadian military.

Under the contract, Navistar will build as many as 1,300 medium-sized logistics trucks as part of Canada's medium support vehicle system (MSVS) project, for a total cost of about $231 million -- about $180,000 per truck. Deliveries will be more or less evenly split between this year and the next, with 600 trucks arriving in 2009, and the balance in 2010.

Small potatoes, you say? The $231 million doesn't mean much for a company that moved nearly $15 billion in hardware last year? OK, maybe it doesn't -- yet. But the import of this contract goes beyond the initial monetary value. Consider that Navistar has stated that two of its key objectives in this fiscal year are to:

• build a "sustainable military business," with $2 billion in military truck revenue as a target; and
• grow its parts business, which accounts for 12% of revenue.

The MSVS contract helps Navistar in both efforts. According to management, it "positions the company well for future opportunities under MSVS," such as the opportunity to replace "more than 1,500 units" of medium lift trucks and trailers under Canada's standard military pattern (SMP) program. Plus, once these trucks enter service in the Canadian military, they'll begin wearing out and generating revenue streams for Navistar's parts business. All of which positions Navistar to expand its business at the expense of rivals like Oshkosh (NYSE: OSK) and Motley Fool Stock Advisor recommendation PACCAR (Nasdaq: PCAR).

There's also the possibility that successful performance on the new Canadian contract could help Navistar win mine-resistant ambush-protected (MRAP) vehicle contracts away from U.S. rivals like Force Protection (Nasdaq: FRPT) and General Dynamics (NYSE: GD). Force Protection already supplies the vehicles to Canada, and General Dynamics operates an MRAP-building subsidiary up north. While it would be playing catchup, Navistar has already enjoyed great success in stealing MRAP market share from its rivals south of the border.

Foolish takeaway
Investors threw a fit when Navistar reduced earnings expectations last week. But even at the low point, the guidance is still $5.10 in per-share profit this year. With a P/E now sitting in the mid-single digits, and growth prospects improving with each new contract win, I cannot help but think this stock is going higher.

Further Foolish stargazing available at:

• Navistar, Exploding Star
• Navistar, Rising Star?
• Navistar's Falling Star