Should We Follow Icahn Into This Loss Making Truck Maker? – Navistar International Corp’s (NAV), PACCAR Inc (PCAR)

What makes me worry is a negative book value that Navistar carries on its book. As of Jan. 2013, it had $1.27 billion in cash, $4.46 billion in both long and short-term debt and a negative book value of -$3.36 billion. The negative book value was caused by negative retained earnings of nearly -$3.3 billion and accumulated other comprehensive income of -$2.27 billion.

Peer comparison

With a current trading price of around $35 per share, its total market capitalization is around $2.8 billion. The market is valuing Navistar at only 0.2 times sales. Because of the negative book value, the price-to-book ratio is not valid. Compared to its peers including BAE Systems and PACCAR Inc (NASDAQ:PCAR), Navistar is a much smaller company. BAE, at a current trading price of about $22 per share, is worth nearly $18 billion on the market. The market is valuing BAE at 0.66 times sales and as high as 2.95 times book value. PACCAR Inc (NASDAQ:PCAR) is trading at nearly $50.50 per share, with a total market cap of $17.8 billion. It seems to have the most expensive valuation of 1 times sales and nearly 3 times its book value. PACCAR Inc (NASDAQ:PCAR)deserves the highest valuation, as it is the most profitable company among the three. It has the highest operating margin of 9.4% while the operating margin of BAE is 9%. As Navistar has been generating losses, it has the cheapest P/S valuation.

The Foolish bottom line

Although two famous activist investors, Carl Icahn and Mark Rachesky have been building up their position in the company, I personally don’t feel comfortable investing in Navistar at the current moment, due to the negative book value and the unprofitable operation.

The article Should We Follow Icahn Into This Loss Making Truck Maker? originally appeared on Fool.com and is written by Anh HOANG.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.