Shares of Navistar International Corp. are poised to rebound once the truck manufacturing business, which is experiencing one of the toughest sales environments in years, pulls out of the economic doldrums.

The recovery for the truck manufacturing business will be more prolonged than for the auto industry, as trucks are usually purchased on emission cycles, market watchers noted. The Environmental Protection Agency’s new strict diesel engine emission standards will go into effect in 2010, which comes three years after the last series was implemented.

Navistar, which earlier this year unveiled an engine to meet the latest EPA standards, expects those standards to lead to a pre-buy of trucks in November and December.

“Right now, I think we are the only manufacturer out there that has gotten 2010 compliant engines in production today, ahead of schedule,” said Navistar spokeswoman Heather Kos.

The company manufactures medium and heavy trucks , including commercial and military trucks under the International brand, as well as school and commercial buses. It also makes mid-range diesel engines.

Navistar’s leading market share in medium-sized trucks means that when its customers begin buying vehicles that meet the EPA’s requirements, the company’s stock, which closed Wednesday at $39.72, could benefit. Shares reached a 52-week low of $15.24 on Nov. 12, a far cry from their 52-week high of $79.05 on June 6.

The shares look inexpensive on a price-to-earnings ratio when compared with the Standard & Poor’s 500 index. Navistar has a P/E of 6.39, according to the New York Stock Exchange’s Web site. The S&P’s ratio is 15.22.

“We have been a buy on Navistar for awhile now,” said Kirk Ludtke, an analyst with CRT Capital Group LLC. “One reason is that on the commercial vehicle side, the company has large shares of its core markets. Another reason is that their new emission technology goes into effect in January of next year.”

Many forecasting models predict that the economy will hit a bottom in the third quarter and that truck manufacturing will follow an increase in freight demand, said B. Starr McMullen, professor of economics at Oregon State University.

“Trucking manufacturing is going to be a lagging indicator,” she said. “You are not going to see a big demand for the trucking industry until the economy picks up and companies need replacement parts.”

But Kent Mortensen, an analyst with Thrivent Asset Management LLC, a shareholder of Navistar’s stock, said truck manufacturing is on the front end of rebounding industries.

“One of the things we like is the early cycle nature of Navistar,” he said. “When the economy starts to improve, one of the first things improving is freight. When freight improves, truck manufacturing picks up.”

At Navistar’s Warrenville headquarters, however, a recovery has yet to be felt.

In April volume of heavy-duty U.S. truck sales fell 44.4 percent from the year earlier period, according to WardsAuto.com, a data service covering the auto industry. In Navistar’s annual report to shareholders, the company reported truck industry volume in 2008 was 244,100, nearly half of the volume two years earlier.

Navistar leads the industry with 36 percent of the medium-truck market and 36 percent of the market share in mid-range engines, according to its 2008 annual report. Navistar gained 4.9 percentage points in overall market share through the first four months of the year, as reported by WardAutos.com.

Navistar said one product that is selling well is the International ProStar heavy-size truck, which launched in late 2007 and boasts up to 7 percent fuel efficiency over other class 8 trucks on the road.

“Given where we are with the economy, truckers are very focused on how they can lower their operating costs,” said Navistar’s Kos. “[The ProStar] is a class 8, long haul truck that people either can sleep in or they can use as a day cap feature.

Despite hard times, analysts and company executives alike said that Navistar’s entrance into the defense market in 2005 has helped diversify and sustain their business lines.

Kos said that is has been difficult and there have been staff cuts, but their emergent defense business has mitigated the impacts of a tough economy.

“Our CEO about four or five years ago decided to enter the military space, so we have been able to have an income stream leveraging our commercial vehicle platforms and facilities,” she said.

Navistar reported slightly increased first-quarter revenues, to $2.9 billion from $2.86 billion, in part from the company’s growing military business.

Navistar has submitted three prototypes for the U.S. Department of Defense’s procurement for a new lighter, mine-resistant vehicle that is safer to navigate the Afghan terrain, the Mine Resistant Ambush Protected All Terrain Vehicle.

“Despite its filing of a protest during the selection process, we believe that Navistar still has a chance to win at least part of the final contract,” Ann Duignan, an analyst with J.P. Morgan Chase & Co, said in a May 1 note. “However, significant competitive and political risks remain.”

Thrivent Asset’s Mortensen called the military business a “nice cushioning to earnings.”

“Navistar has strong U.S. market share and we like the fact that they have a nice position within the military market,” he said.

The Defense Department’s contract could award an order for 2,080 to 10,000 units, which Duignan said could result in as much as $1 billion in revenue and 2 dollars per diluted share by fiscal year 2010. A final decision is expected in June.