Company Reports

CNH Industrial provides customers with an extensive portfolio of off-highway products. We believe it will continue to be a top-two player in the agriculture industry. For generations, the company’s agriculture equipment has garnered intense brand loyalty among farmers. Customers value CNH’s high-quality and strong-performing products, in addition to its robust dealer network. In developed markets, CNH helps customers reduce the total cost of ownership through improved fuel efficiency, limited machine downtime, and consistent parts availability.

CNH Industrial provides customers an extensive product portfolio of off-highway products. We believe it will continue to be a top-two player in the agriculture industry. For generations, the company’s agriculture equipment has garnered intense brand loyalty among farmers. Customers value CNH’s high-quality and strong-performing products, in addition to its robust dealer network. In developed markets, CNH helps customers reduce the total cost of ownership through improved fuel efficiency, limited machine downtime, and consistent parts availability.

Narrow-moat CNH reported fourth-quarter results that showed ag demand continuing to slow. In the ag segment, sales were down 8% year on year, while gross margin was up 20 basis points to 23.3%, largely thanks to cost-reduction initiatives that started to show progress in the quarter. In construction, sales were up 9% year on year, and gross margin expanded 150 basis points to 14.8%.

CNH Industrial provides customers an extensive product portfolio of off-highway products. We believe it will continue to be a top-two player in the agriculture industry. For generations, the company’s agriculture equipment has garnered intense brand loyalty among farmers. Customers value CNH’s high-quality and strong-performing products, in addition to its robust dealer network. In developed markets, CNH helps customers reduce the total cost of ownership through improved fuel efficiency, limited machine downtime, and consistent parts availability.

The ag slowdown has been the story for the past couple of quarters. Ag demand in South America has been weaker than ag manufacturers were expecting. Europe has also been challenged, while North America remains constructive, though U.S. corn supplies have started to tick up lately, pressuring U.S. corn prices.

CNH Industrial provides customers an extensive product portfolio of off-highway products. We believe CNH will continue to be a top-two player in the agriculture industry. For generations, the company’s agriculture equipment has garnered intense brand loyalty among farmers. Customers value CNH’s high-quality and strong performing products, in addition to its robust dealer network. In developed markets, CNH helps customers reduce the total cost of ownership through improved fuel efficiency, limited machine down-time and consistent parts availability.

CNH reported weaker third-quarter earnings than we expected. This led us to decrease our fair value estimate to $15.80 from $16.60 previously. The nearly 5% decline in our fair value is a result of our lower sales expectations for 2023 and 2024. CNH had previously been calling for 8%-11% sales growth in 2023 but has since reduced its target to 3%-6% sales growth. Now, we expect 3% sales growth in 2023, the low end of guidance. Our updated thinking is largely driven by the market challenges in South America.

CNH Industrial provides customers an extensive product portfolio of off-highway products. We believe CNH will continue to be a top-two player in the agriculture industry. For generations, the company’s agriculture equipment has garnered intense brand loyalty among farmers. Customers value CNH’s high-quality and strong performing products, in addition to its robust dealer network. In developed markets, CNH helps customers reduce the total cost of ownership through improved fuel efficiency, limited machine down-time and consistent parts availability.

We raised our fair value estimate for CNH to $16.60 from $16.10, largely reflecting the time value of money since our last update. We maintain our view that ag demand will remain solid in 2023. Our thinking is underpinned by the continued undersupply of crops globally, which will drive farmers to plant more. Crop supplies are slightly above cycle lows currently and are showing few signs of improving in the balance of the year. With constrained crop supplies comes higher crop prices, which is putting more income in farmers' pockets. Crop prices remain elevated, albeit at slightly lower levels compared with the highs seen in 2022.

CNH Industrial provides customers an extensive product portfolio of off-highway products. We believe CNH will continue to be a top-two player in the agriculture industry. For generations, the company’s agriculture equipment has garnered intense brand loyalty among farmers. Customers value CNH’s high-quality and strong performing products, in addition to its robust dealer network. In developed markets, CNH helps customers reduce the total cost of ownership through improved fuel efficiency, limited machine down-time and consistent parts availability.

CNH reported solid earnings to start 2023, thanks to solid ag demand. Ag sales increased to $3.9 billion, up 19% year on year (constant currency). Our near-term demand outlook remains positive, as crop supplies are still near cycle lows. The current environment (high crop prices) incentivizes farmers to plant more crops. We expect 2023 to be another strong year for CNH, leading us to forecast over 9% sales growth compared with 2022. All in all, our $16.10 fair value estimate is unchanged, following first-quarter earnings. The company currently trades 13% below our fair value estimate. We’d like to see a greater margin of safety before getting excited about the valuation.

CNH Industrial provides customers an extensive product portfolio of off-highway products. We believe CNH will continue to be a top-two player in the agriculture industry. For generations, the company’s agriculture equipment has garnered intense brand loyalty among farmers. Customers value CNH’s high-quality and strong performing products, in addition to its robust dealer network. In developed markets, CNH helps customers reduce the total cost of ownership through improved fuel efficiency, limited machine down-time and consistent parts availability.

CNH Industrial provides customers an extensive product portfolio of off-highway products. We believe CNH will continue to be a top-two player in the agriculture industry. For generations, the company’s agriculture equipment has garnered intense brand loyalty among farmers. Customers value CNH’s high-quality and strong performing products, in addition to its robust dealer network. In developed markets, CNH helps customers reduce the total cost of ownership through improved fuel efficiency, limited machine down-time and consistent parts availability.

CNH Industrial provides customers an extensive product portfolio of off-highway products. We believe CNH will continue to be a top-two player in the agriculture industry. For generations, the company’s agriculture equipment has garnered intense brand loyalty among farmers. Customers value CNH’s high-quality and strong performing products, in addition to its robust dealer network. In developed markets, CNH helps customers reduce the total cost of ownership through improved fuel efficiency, limited machine down-time and consistent parts availability.

To start 2022, CNH executed the planned demerger of its on-highway businesses, shifting its focus to off-highway operations. At the time, we applauded the move as the ag business was by far its strongest performer. CNH’s Case IH brand is a strong number two right behind global leader Deere. For the full year, ag sales increased 22% year on year to nearly $18 billion. Many of the tailwinds that we’ve highlighted in recent quarters were still at play. Demand for ag machinery continues to run high as farmers replace their aging machines. Many farmers held on to their machines during the last downturn, which extended the average fleet age across the industry.

CNH Industrial provides customers an extensive product portfolio of off-highway products. We believe CNH will continue to be a top-two player in the agriculture industry. For generations, the company’s agriculture equipment has garnered intense brand loyalty among farmers. Customers value CNH’s high-quality and strong performing products, in addition to its robust dealer network. In developed markets, CNH helps customers reduce the total cost of ownership through improved fuel efficiency, limited machine down-time and consistent parts availability.

The attractive precision agriculture opportunity has led us to raise our fair value estimate for Deere to $332 per share from $297. We also raised our fair value estimate for CNH to $15.60 per share from $14.10 and for Agco to $133 per share from $127. These players possess automation technology for one or more farming production steps, which we think increases the likelihood of leveraging the technology across the farming production cycle in the next decade.

CNH Industrial provides customers an extensive product portfolio of off-highway products. We think CNH will continue to be a top-two player in the agriculture industry. For generations, the company’s agriculture equipment has garnered intense brand loyalty among farmers. Customers value CNH’s high-quality and strong performing products, in addition to its robust dealer network. In developed markets, CNH helps customers reduce the total cost of ownership through improved fuel efficiency, limited machine down-time and consistent parts availability.

CNH showed good momentum in the third quarter, as demand for large ag equipment remains strong. This led us to raise our fair value estimate to $14.10 from $13.60 previously. We raised our near-term sales expectations to account for stronger ag sales in the back half of this year. We’re now projecting the ag business to grow over 18% in 2022 (including contribution from Raven).

CNH Industrial provides customers an extensive product portfolio of off-highway products. We think CNH will continue to be a top-two player in the agriculture industry. For generations, the company’s agriculture equipment has garnered intense brand loyalty among farmers. Customers value CNH Industrial’s high-quality and strong performing products, in addition to its robust dealer network. In developed markets, CNH Industrial helps customers reduce the total cost of ownership through improved fuel efficiency, limited machine down-time and consistent parts availability.