In an upgrade last week, JPMorgan analyst Ann Duignan said that Navistar's biggest risks are its struggles to meet Environmental Protection Agency emissions standards on new truck lines, while the prospect that the company finds a stragetic partner like Cummins, VW or Fiat Industrial limits that downside.

Fiat chairman Sergio Marchionne said he wants to increase the company's presence in the U.S. earlier in June, leading to speculation that Italian automobile and trucks giant could be interested in Navistar after taking a majority stake in Chrysler in 2009.

A full blown strategic acquisition of Navistar continues to remain an unlikely prospect, noted Duignan of JPMorgan, citing the company's $3.2 billion of pension liability and its $2 billion of ordinary debt. Given potential takeover interest, Duignan gives Navistar shares a $31 price target.

Without M&A speculation and activist investors driving shares, Navistar may face a rough ride. The Lisle, Ill-based company recently said it's struggling to meet new government mandated emission standards for one of its truck engines and cut its 2012 profit guidance to $5.25 a share from $5.75.

After Navistar lowered its profit forecasts, Deutsche Bank analysts said last week that share expectations for the company in the second half of 2012 may still be too high. "Navistar's current guidance assumes both positive pricing actions and market share gains in the second half of 2012 . In our opinion, both could be challenging, even assuming EPA certification over the next few months," the analysts noted.

"Although we believe that the drums of shareholder activity are likely to bang louder, we believe both Volkswagen and Fiat are likely more at the consideration stage, if that far in their thinking," wrote Sterne Agee analyst Jeffrey Kauffman in note to clients last Tuesday that cited regulatory challenges, the cyclicality of U.S. truck sales and shareholder provisions as possible headwinds to a deal.

In October, Icahn took a 9.8% stake in Navistar a maker of commercial trucks, busses and diesel engines. Last Friday, Icahn upped his stake in Navistar to nearly 12% from 10.6%, buying up 883,200 shares at an average price of $24.44, according to a filing with the Securities and Exchange Commission.

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