NEW BEARISH Plays

Navistar Intl. Corp. - NAV - close: 27.72 change: -0.56

Stop Loss: 30.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on April -- at $---.--
Listed on April 11, 2015
Time Frame: Exit PRIOR to earnings in June
Average Daily Volume = 940 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
Right now the automobile industry looks pretty healthy. U.S. auto sales in 2014 hit 16.5 million units. That was a +6% improvement over 2013. The most recent data showed March auto sales hitting a seasonally adjusted annual rate of 17.1 million, above estimates for 16.9 million. Unfortunately, this healthy pace of auto sales is not translating well for NAV since they make large trucks and busses.

NAV is in the consumer goods sector. According to the company, "Navistar International Corporation (NAV) is a holding company whose subsidiaries and affiliates produce International brand commercial and military trucks, proprietary diesel engines, and IC Bus brand school and commercial buses. An affiliate also provides truck and diesel engine service parts. Another affiliate offers financing services."

To be fair NAV did see significant improvement last quarter with stronger demand for some of its trucks and school busses but it was not enough to overcome a string of quarterly losses. NAV has been consistently losing money.

The big gap down in the stock price in December was a reaction to the company's Q4 report. Analysts were expecting a profit of $0.10 a share. NAV delivered a loss of $0.88. NAV's most recent report was March 3rd. The company reported a loss of $0.52 a share. This was a huge improvement over the year ago quarterly loss of $3.05 a share. The 52-cent loss number was well above analysts' expectations. Yet revenues came in at $2.42 billion when Wall Street was expecting $2.61 billion.

A couple of weeks later, on March 18th, Nicole DeBlase, an analyst with Morgan Stanley, downgraded shares of NAV to "underweight" and cut their price target to $20.00. According to DeBlase, "Based on our detailed scenario analyses, we conclude that 2016-17e consensus bakes in bullish market share regain and aggressive incremental cost cuts; we are uncomfortable with this given a lack of market share traction and execution issues to date."

Coincidentally the point & figure chart for NAV is bearish and forecasting a $20.00 target. There are a lot of bears already in this name. The most recent data listed short interest at 33% of the 48.5 million share float. The short interest does increase our risk. NAV has long been rumored to be a takeover target. Should there be another convincing story that someone might buy NAV it could spark some short covering.

Right now NAV is underperforming the broader market. It's breaking down under support near $28.00 and is about to breakdown under its February low near $27.50. We are suggesting a trigger to launch small bearish positions at $27.40.

Trigger @ $27.40 *small positions to limit risk*

- Suggested Positions -

Short NAV stock @ $27.40

- (or for more adventurous traders, try this option) -

Buy the JUL $25 PUT (NAV150717P25) current ask $1.35
option price is a current quote and not a suggested entry price.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

Option Format: symbol-year-month-day-call-strike

Daily Chart:

Long-term Chart: