Navistar stock jumps nearly 400 percent, VW deal cited as key

Jan 10, 2017

Shares of Navistar have rebounded sharply over the past year as analysts said the company’s finances have stabilized and the truckmaker got a major boost from a new partnership with Volkswagen.

The company’s shares fell as low as nearly $6.50 in mid-January last year. But the shares have steadily risen and reached as high as nearly $32 per share earlier this month — a nearly 400 percent increase.

The improving share prices are beneficial for the company’s investors, many of whom are workers and retirees living in Clark County. The company’s Springfield plant is a major employer with more than 1,500 employees. The company has also worked to boost hiring in preparation for two joint agreements with GM.

RELATED: Major Springfield employer Navistar reports net loss of $97M this year

“We have a strong retiree base here and they want to see the company succeed as well,” said Mike McDorman, president of the Chamber of Greater Springfield. “We have a lot of new employees being onboarded there every day.”

Analysts didn’t comment on the company’s share price specifically, but said it’s clear the manufacturer has undergone a turnaround and regained the confidence of investors and customers. Navistar also made significant news in September, when it announced an alliance with Volkswagen that calls for the German firm to buy a roughly 17-percent equity stake in Navistar and invest about $256 million.

Vicki Bryan, a senior high yield analyst at Gimme Credit, said Navistar’s management should be credited with turning around a company that had been in serious financial trouble. Just a few years ago workers weathered turmoil that included top management changes, legal struggles, a recession and a failed engine technology.

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“They’ve built a durable model that can survive even in difficult market conditions and that’s appealing to Volkswagen because Volkswagen is looking to use this as its cornerstone North American presence,” Bryan said.

Navistar officials also pointed to Navistar’s alliance with Volkswagen as a key to the company’s future.

“While we won’t speculate on what drives stock performance, we will point out the majority of the increase came after we announced our proposed alliance with Volkswagen Truck and Bus in early September,” said Lyndi McMillan, a Navistar spokeswoman. “We are very excited about this alliance opportunity and the many benefits it offers the company.”

McMillan also pointed out the company has taken major strides to improve the business.

“The announcement has sparked improved consideration in the company with many stakeholders, including investors,” she said of the Volkswagen deal. “We’ll also point out we’ve seen four consecutive years of improved bottom-line performance, including in 2016 when the industry faced more challenging conditions. This company has achieved 10 years of progress in the last three plus years. We continue to demonstrate our resilience and the long-term viability of our enterprise.”

DETAILS: Navistar to add 300 more jobs in Springfield with second GM deal

The Springfield plant also is gearing up to begin production of a cutaway model of GM’s G Van beginning early this year. Navistar and GM also made a joint agreement in 2015 to build medium-duty trucks in Springfield.

Those deals provided security, along will millions in new investments in a plant that as recently as 2010 had as few as 300 workers. Local leaders have credited better relations between the UAW Local 402 and the company’s management for making those deals possible.

UAW Local 402 representatives couldn’t be reached for comment Monday.

As Navistar underwent its recovery, Bryan said many analysts believed the manufacturer might run out of time to turn around as many companies were replacing aging truck fleets. That may have caused stocks to slide, despite Navistar’s improving financial position, she said.

“Navistar is in better shape financially but it was not fully recovered,” Bryan said.

Company officials recently said the trend of weak demand in the U.S. and Canada for heavy-duty trucks is likely to continue into at least the first half of next year. Navistar reported a net loss of $97 million in 2016 as the heavy truck market remained weak. But that’s half of what it lost the year before.

Bryan said decisions Navistar has made in recent years puts the truckmaker in a much better position to thrive moving forward.

“That doesn’t mean it’s not going to have some weaker quarters than others,” Bryan said. “But it’s not going to go bankrupt. It can cover its cost and it can cover its debt and retain a viable business model, even if market conditions are difficult. That’s an attraction for Volkswagen.”