Why Navistar International Corp. Stock Is in Overdrive Today

Navistar International should see higher sales and earnings in the quarters ahead.

Apr 24, 2014 at 3:01PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of truck and bus producer Navistar International Corp. (NYSE:NAV) are accelerating as much as 6.4% today on news of expanded production plans.

So what: Navistar International announced today that it will be expanding production rates at both its "heavy truck assembly plant in Escobedo, Mexico, as well as its bus assembly plant in Tulsa, Okla." Jack Allen, the company's CEO, said this was in reaction to both industry-wide positive trends in general and positive response for the product offerings specific to Navistar. It is a win-win for the company and its shareholders.

Now what: Navistar plans to see increased production starting in the second half of 2014. The bus plant should see a 17% jump when compared to the first half of the year, and the heavy truck plant should see a 24% leap. The truck assembly plant in Springfield, Ohio, is expected to maintain its current production rate while the company works on increasing efficiency and by extension profit margins.

Allen described the demand the company is seeing as "strong interest" especially for its Cummins ISB engine in medium-duty trucks and school buses. This summer, Navistar is launching vocational truck products powered by 9-liter and 10-liter engines with SCR emissions technology.

The last line of the press release was most telling. Allen stated, "With these product offerings, we're seeing some positive momentum in our truck and bus orders and have an order backlog 80 percent higher than this time last year."

The news comes as a breath of fresh air for investors after the "tough quarter" earnings report on March 5. During that quarter, Navistar mentioned that it had "one of our biggest opportunities" ahead of it to reclaim its market position in medium-duty and bus segments while improving its financial performance throughout 2014 and 2015, but the numbers reported at that time were not good and the stock took a hit. Today's news shows that the company is taking another step in the right direction.

Navistar International trades at a forward P/E of 20 based upon its current share price and an average estimated earnings per share of $1.87 for the fiscal year ending October 2015. However, the analysts are all over the map: Their estimates range from between a loss of $1.32 to a gain of $4.52. It will be interesting to see how they change their estimates in response to today's news.

Nickey Friedman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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