Is Navistar A Hidden Gem?

| About: Navistar International (NAV)
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Carl Icahn has done his best to tear Navistar (NYSE:NAV) asunder. With a proxy battle now underway, this process could get uglier before it gets better. This isn't the first company Carl Icahn has done this to in the past year. Lionsgate (LGF) was a takeover target of his last August, and the stock has soared from $6 per share to over $15 per share today. CVR Energy (NYSE:CVI) was a successful takeover bid for Icahn, and the company has shot from $26.05 per share to nearly $37 per share.

Icahn has been seeking turnaround targets. He is looking for undervalued companies with balance sheets showing growth. Companies with increasing receivables and decreasing liabilities have been Icahn's ideal targets. He wants the ability to take credit for the success of each company.

Enter Navistar. Navistar is in the midst of a turnaround. The global economic slowdown has hurt this manufacturer. They are the cream of the crop when it comes to engineering quality engines, especially when it involves engines for construction vehicles. While the fundamentals may seem weak, this company deserves a more in-depth look before passing judgment. The balance sheet tells the story.

Currently, Navistar has a P/E of 122.76, a PEG ratio of -54, and EPS of $.20, and a P/S of .12. That P/S ratio is intriguing. When you look past the window dressing fundamentals and into the balance sheet, the numbers become quite provocative. Total current assets have increased each of the last three years, while their Goodwill assets have remained a small portion of total assets.

A further breakdown of the assets show that net receivables have grown over the last three years at a phenomenal rate. In October 2009, Navistar's net receivables were $2.67 million. In October 2011, net receivables were $3.89 million. That represents a growth rate of 45.7%, an impressive growth rate for such a mature company.

A look at the liabilities of Navistar look promising as well. Long-term debt has decreased over the past three years from $4.16 million to $3.48 million. That is definitely a step in the right direction for a company in the middle of a turnaround. While total assets have grown by more than 20%, total liabilities have grown by less than 10% over the past three years. Navistar is showing progress in their move towards profitability. The increasing receivables, and general cleaning up of the balance sheet is putting this stock in the right direction.

Comparing Navistar to CVR Energy and Lionsgate usually is an impossible task, however these three companies have all received takeover bids from Carl Icahn. A look at all three companies at the point they received takeover bids show that all three were poised for a turnaround. As far as the takeover potential goes, it doesn't seem likely for Icahn to accomplish that task. Navistar has a poison pill policy making it impossible for any single investor to own more than 15% of the company. While four individuals may own the maximum shares allowed, it would take a Herculean effort for Icahn to get the other three on the same page.

Despite the slowing global economy, this company is in the perfect position to bounce back. The take down of this stock has made it a perfect gem for your portfolio. That is the reason Icahn wants control. Any rebound in the global economy could shoot this stock upward, and make him look like a genius.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Always consult with a financial professional before adding a position to your portfolio. Investing involves a certain level of risk, never invest more than you can afford to lose.