Buy - Price 39.91 on June 2
by Sterne, Agee & Leach

Six-to-12-month target: 52. Navistar has emerged successfully from the accounting issues that plagued it starting in 2004.…Navistar operates through four distinct segments: trucks (about 70% of revenue, about 65% of operating income), engines (about 15% to 18% of revenue), parts (about 8% to 10% of revenue [from] 11 regional distribution centers, and about 966 dealers), and financial services. Navistar Financial Services (3% to 4% of revenue) provides wholesale and retail financing for Navistar products as well as products of other manufacturers. Embedded within the truck segment is the company's defense-related effort, which accounts for about $2 billion in sustainable sales on an ongoing basis. In 2006, Navistar entered the military business by offering commercial off-the-shelf solutions instead of bespoke vehicles. Navistar's strategy allowed for low cost and flexible manufacturing of M-RAPs [Mine-Resistant Ambush-Protected vehicles], which resulted in peak sales to the military of about $4 billion in FY08. The company's unique approach is making it a formidable competitor on future bids, such as for the M-RAP-ATV… The defense business is now critical to Navistar. Market cap: $2.7 billion.

Operates in high barriers to entry market. Industry consolidation. Status of financial reporting artificially depressing company valuation relative to private value

YTD % return: +38.53

The company has been kicked out of the S&P 500 and might get kicked out the NYSE but she thinks this creates opportunity. "When everyone starts downgrading a stock, it's usually time to buy."

The company is ni many steady businesses she says. "ts 60% share of the school-bus market generates annual revenue of about $1.3 billion. It has a replacement-parts business growing at 10% a year, with revenue of $1.7 billion. Its financial-services business earns more than $100 million a year. It also has a military and other severe-services business that generate $1 billion."

She thinks it could get as high as $69 and that the company can potentially earn $5.25 by 2008.