Navistar International (NAV) is one of the largest truck producers after Daimler and PACCAR. But we are worried about its mounting research and development expenses on the back of stricter regulations by the government, from whom it generates a significant portion of revenues.
Further it faces significant supplier risk, owing to higher dependence on only a few suppliers of components. In the most recent quarter, the company reported a loss of $1.99 per share in sharp contrast to a profit of $1.30 per share in the prior-year quarter and the Zacks Consensus Estimate of $0.67 per share.
As such, we have downgraded the recommendation on the shares of the company from Neutral to Underperform and set a target price of $26.00. This amounts to 50.0X our 2012 EPS estimate.
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