The two biggest names in Navistar have been billionaire activist investor Carl Icahn and former Icahn employee Mark Rachesky’s MHR Fund Management. Icahn had been pushing Navistar and Oshkosh Corporation (NYSE:OSK) to merge, but recently abandoned that strategy after failing to gain enough support from Oshkosh shareholders to take control of the company. Rachesky recently added shares of Navistar, and it is one of MHR’s largest holdings (read more about Rachesky’s buying Navistar and find more of his favorite stocks). Icahn had owned over 10 million shares at the end of the third quarter; other large investments of his included Chesapeake Energy Corporation (NYSE:CHK) and an activist campaign at American Railcar Industries, Inc. (NYSE:ARII) (check out more stocks Icahn owned).
Now Citadel Investment Group, which is managed by billionaire Ken Griffin, has reported ownership of 4.3 million shares of the stock; this is 5.4% of the company’s outstanding shares. This is up from about 590,000 shares at the end of September (see more of Griffin’s stock picks). We don’t know if this is because Griffin and his team want to weigh in on the battle for Navistar or if they merely believe that the market has sent the stock too far down. Troy Clarke, the company’s president, bought shares in late December at an average price of $20.27 per share; this could signal his confidence that Navistar will rebound from its recent poor performance.
Wall Street analysts believe that things will get worse before they get better- but they will get better. Consensus is for significant net losses in the current fiscal year ending in October 2013, but for $2.02 in earnings per share in the following year (though that is the average of a very wide range, with at least some analysts seeing unprofitability in that year as well). The P/E multiple implied by that consensus estimate is only 11. That is indeed a value-level multiple, but it is based on financial performance a good bit in the future and of course the sell-side is often optimistic about the prospects of the companies they cover.
What about Oshkosh and other peers?
Oshkosh actually looks like it might be a good deal based on current financials, at 13 times trailing earnings. Naturally it’s important to look more closely at the company before making any decision, particularly one as exposed to the broader economy as Oshkosh- the stock’s beta is 2.1- but further research may be worth it. Other peers include PACCAR Inc (NASDAQ:PCAR) and Hyster-Yale Materials Handling Inc (NYSE:HY). These companies trade at low earnings multiples as well: their forward P/Es, for 2013, are 14 and 11 respectively. However, each of them also reported a decline in revenue in the third quarter of 2012 versus a year earlier.
It’s interesting to see Citadel get involved in Navistar, and see if this adds any complications to how the company is managed going forward. However, we don’t think that investors should necessarily follow Griffin and his team into this investment. Navistar is still struggling and piling up losses, and we would prefer to see it at least getting close to profitability before considering it as a value investment. The forward earnings projections are a bit speculative to use at this point, particularly coming from sell-side analysts.
