Carl Icahn, MHR Set Sights On Navistar International Corp (NAV)

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Paccar Inc (NASDAQ:PCAR) is another top Navistar competitor and is expected to see revenues up by 9% in 2013. The slowing North American heavy-duty truck market has put pressure on Paccar. The equipment maker has been delaying capital expenditures, though its shares have still managed to remain up 20% year to date. The stock pays a dividend yield of 1.8%. Billionaire Steve Cohen – founder of SAC Capital – is one of Paccar’s big name investors (check out Steven Cohen’s top moves).

Deere & Company (NYSE:DE) is an equipment-making giant that has managed to scale operations and its business to transform itself into a farm and construction mega-manufacturer. With its size and ability to generate cash – $4.6 billion on hand as of 3Q – Deere rewards shareholders with a 2.2% dividend yield. Deere is also a global economic bellwether that might be poised for growth on the toes of a rebounding economy. Higher harvest prices and rising populations worldwide should help boost demand for farm equipment, while developing emerging markets and an aging out of equipment will drive construction equipment revenues. Notably, Deere saw Warren Buffett take an almost 4 million-share position last quarter (see Buffett’s top stock picks).

On a valuation basis, Cummins, Paccar and Oshkosh all trade in a tight P/E range, but Navistar has an incalculable P/E. Looking beyond earnings, we see that Navistar is a solid value on a P/S and P/CF basis. The stock trades the cheapest amongst its peers using both metrics, with a P/CF of 4.5x and P/S of 0.1x. We see limited growth for Oshkosh with its defense segment expected to continue to be weak, but remain confident in Navistar. We believe that investors are underappreciating Navistar’s cash flow generating capabilities. Navistar has managed to grow free cash flow by 25% over the last five years, with Paccar and Oshkosh having negative return rates and Cummins lagging behind by nearly 10 percentage points.

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