Why is CNH Global Stock So Cheap?

When I bought CNH Global (CNH) on Tuesday, I thought I had a low risk entry upon a bounce off its 200 DMA. Well, if I were to use a "catching falling knives" analogy, I didn't just cut my hands, I got them nailed to the floor. Nonetheless, I just can't see how the selling is justified by the fundamentals.

Ostensibly, the bloodbath was precipitated by a disappointing '08 EPS guidance of $3.30-3.60, below the consensus of $3.67. However, at its lower bound, the guidance is still 40% above the '07 EPS of $2.36. From the chart below, we can see that the P/E of CNH was around 20 in '05 when earnings were flat. Through its bull run, its P/E rarely dip below 20. Thursday's closing price of $6.00 gives it a trailing P/E of 19.5 and a forward P/E of 13.9 when assuming an '08 EPS of $3.30. On a historical basis, and in view of the 40+% anticipated earnings growth, the stock is cheap.

click to enlarge

Perhaps people were unnerved with its guidance of North American construction equipment sales being down 10% in '08; however, for '07 the company saw a reduction of 23% in the same category but still managed a gain of 23% in worldwide construction equipment sales. The farm equipment side is more than twice as large, and growing much faster. In summary, I see this sell-off as an over-reaction at a difficult time in the overall market. I'm holding onto CNH since I'm confident of its growth prospects.

Comments

[StockBoy2:]

I agree completely. This is a strong company with a global reach, biodesiel friendly, innovatove, 4 wheel drive tractors, design award winning equipment. International Harvestor (Chase Ih) is a houshold word in the american fram belt. I am a buyer!

2008 Jan 25 08:36 AM

[TraderMark:]

Agree, I mentioned the same facts on

www.fundmymutualfund.c...

My only guess at this point is people are panicked and/or don't believe the lower estimates. Let's see how they treat Agco (AG)

2008 Jan 28 04:09 AM

[Mike Jack:]

CNH is posed to be spun off since the performance of is stock is floundering like a fish out of water. Sell the stock and look at Cat or Deer as a better alternative for the comities market. Fiat is their reals concern not the US market.

2008 Mar 21 08:17 AM