Last month, when
( NAVZ) fielded a record order for military vehicles, the experts were stunned.
But the award served notice that the Warrenville, Ill., truck maker has arrived -- and investors have certainly caught on.
"I don't think the industry even gave us a shot," says Archie Massicotte, president of Navistar's International Military and Government unit. "Then it was like, all of the sudden, the competitor that didn't stand a chance came through as the shining star."
In May, Navistar nabbed a $623 million award to supply 1,200 heavily armored trucks under the U.S. military's multibillion-dollar Mine-Resistant Ambush-Protected vehicle program. Even
, the South Carolina-based contractor that has been strongly favored to dominate the MRAP program, has yet to land a single order that big.
To some, Navistar seemed like a dark horse that burst out of nowhere to score an unlikely win. But Navistar itself never viewed its odds as terribly long.
After all, Navistar boasts a rich military history that dates back almost 90 years. At one point, during World War II, Navistar focused on military vehicles alone. More recently, following Daniel Ustian's promotion to CEO in 2002, Navistar set out to recapture its leadership position in the military sector and double the company's size.
Navistar's stock, up 35 cents to $61.20 on Wednesday, has nearly tripled since last summer. The shares have rallied hard despite their Feb. 21 delisting from the
New York Stock Exchange
, due to the company's failure to file its 2005 annual report amid a restatement. Navistar said this month it plans to file some reports within four months, but in the meantime the stock has since been relegated to the lowly pink sheets.
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Navistar faces other challenges as well.
Right now, Navistar is perhaps best known for supplying the diesel engines used in
popular F-150 trucks. But Navistar's relationship with Ford has grown strained -- the companies recently sued one another over contract terms -- and put its valuable contract with the big automaker at risk. Navistar needs some major opportunities to offset that potential loss.
To its credit, Navistar sells everything from engines for school buses to chassis for motor homes. Still, the military ranks as perhaps the company's most powerful growth vehicle of all.
In recent years, Navistar has won multiple contracts to supply vehicles for the war on terror and other battles around the world. Thus, to Navistar at least, bidding on the MRAP program -- now valued at $8.5 billion and counting -- seemed only natural.
"If it's got four wheels and a diesel engine, we need to look at it," Massicotte says simply. "This is what we do every day in the commercial world, so it was pretty close to home."
When the military began soliciting bids for the MRAP program last year, Navistar was already cranking out thousands of commercial truck chassis on a regular basis. Thus, the company felt that it simply needed an experienced armor supplier -- which it found in Israel's Plasan Sasa -- to add the V-shaped hulls that protect MRAP vehicles.
Early this year, Navistar emerged as one of nine companies asked to provide test vehicles for the MRAP program. Navistar faced a late-March delivery date for those vehicles -- but managed to beat it by several weeks. The company kept up that rapid pace during the trial period as well, usually servicing its vehicles and returning them for fresh tests within a day or two.
"It just astonished the industry," Massicotte says. "That's what we do every single day, so we had all the confidence in the world. It was just a matter of convincing our customer."
Still, Navistar had to prove that its MRAP vehicles could withstand blasts as well. Throughout the rigorous testing period, Massicotte says, the company's vehicles held up "extremely well."
Skeptics were caught off guard.
"Little was known beforehand about Navistar's vehicle, the MaxxPro, except that there were questions regarding the construction method ... and concerns regarding Navistar's inexperience with combat vehicles," Thomas Weisel Partners analyst David Gremmels wrote earlier this month. "As a result, last week's award of 1,200 vehicles to Navistar came as a surprise for many following the competition -- including ourselves."
Gremmels is among a crowd of industry experts who overlooked Navistar as a serious player in the MRAP game. He continues to embrace Force Protection, with an overweight recommendation on the company's $24 stock, despite the unexpected threat that Navistar now poses. His firm makes a market in Force Protection's securities.
For his part, Massicotte believes that the industry should be taking Navistar quite seriously. Meanwhile, he personally feels more delighted than surprised by the company's big win.
"It was fantastic to get that phone call when the contract was awarded," he says. "We stopped for about 24 hours to do a little celebrating. But we were quick to get back to work. We knew we had to deliver."
Navistar is bent on beating its future deadlines as well. So far, Massicotte claims, the company has been speeding along a rapid path to hit the targets it has set. Ultimately, he says, the company will do "everything in its power" to deliver vehicles quickly so that it can save lives -- and, quite candidly, score additional orders down the road.
Navistar must satisfy its current MRAP contract by February of next year. However, the company expects to field enough MRAP orders to keep it busy through 2009.
"We're not in this just to play; we came to win," Massicotte declares. "Where this will end, I don't know. But there are plenty of opportunities yet to come."