When a top executive of a corporation resigns, the market reacts negatively most of the time. Navistar International Corp (NYSE:NAV) recently announced that its CFO, Andrew Cederoth, was leaving the company at the end of this month. Right after the news, Navistar’s stock prices dropped by nearly 5.5% in after hours trading. The company’s share price has experienced a significant fall since the middle of May 2013, going from more than $38 per share to only $26.60 per share.
Navistar has attracted a lot of famous investors including Carl Icahn, Mark Rachesky, and Mario Gabelli. The two activist investors, Carl Icahn and Mark Rachesky, each owns around 12 million shares which account for nearly 15% of the company. Mario Gabelli is the fourth largest shareholder, holding a 5.77% stake in Navistar International Corp (NYSE:NAV). Should we buy Navistar at its current price? Let’s take a closer look.
Sluggish second quarter results
Navistar recently reported sluggish second quarter of 2013 earnings results. Its revenue dropped significantly, down from $3.26 billion in the second quarter of last year to $2.53 billion this year. The loss from continuing operations widened from $138 million, or $2.01 per share, to $353 million, or $4.39 per share. In the second quarter of 2013, only the company’s Parts and Financial Services segments generated profits (of $91 million and $19 million, respectively) while the Truck and the Engine segment produced losses (of $109 million and $138 million, respectively.)
Back in September 2012, billionaire Carl Icahn expressed his concerns about the company’s board. He mentioned that in more than two years, Navistar International Corp (NYSE:NAV) has experienced a significant decline of 40% in its Class 8 market share (from 25% to 15%.) Moreover, in spite of the challenging market environment, Navistar’s board spent money and effort on lawsuits against various stakeholders including suppliers, competitors and regulators. When COO Troy Clarke was promoted to CEO of the company in the first quarter of this year, Icahn felt quite positive. He said that Troy could lead the company to focus on its core business, significantly reduce cost and increase the company’s market share in the North America heavy truck market in the next several years.
Ongoing business restructuring
Navistar International Corp (NYSE:NAV) has been trying to grow its market share again by having a $100 million investment, placing new dealers in key markets and increasing the company’s service capacity by 22%. Throughout the year, the company offered new 15-liter and 13-liter products. It expected to have a market share run rate of 18% at the end of this year. By reducing costs and growing market share, Navistar International Corp (NYSE:NAV) targeted an 8% to 10% EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) run rate by 2015. The company is trading at around $26.60 per share, with the total market cap of $2.14 billion. The market values the company at only 18% of its trailing total sales. Because of the negative book value and negative trailing EBITDA, the price-to-book ratio and EBITDA multiple are not valid.