CNH Global (CNH) is a dominant player in the construction and agriculture equipment market. The company generally plays third wheel to larger companies John Deere (DE) and Caterpillar (CAT). With a market capitalization of $9.3 billion, CNH is 1/3rd the size of John Deere and 1/5th the size of the larger Caterpillar. Investors looking for a large equipment maker may be surprised to learn that CNH is the cheaper option, when counting in earnings and revenue generated per share.
Here is a look at comparable financial information for the three equipment makers:
|Company||CNH Global||Caterpillar||John Deere|
|Market Capitalization||$9.3 billion||$54.9 billion||$31.3 billion|
|2012 Price to Earnings||8.5||8.8||9.5|
|2013 Price to Earnings||7.9||7.9||9.1|
|Price to Sales (last 12 mo)||0.46||0.83||0.91|
As you can see by the chart, CNH Global trades at a cheaper price to earnings and price to sales ratio of both larger rivals. Caterpillar and John Deere both offer dividends on their shares, beating the non yielding shares of CNH Global. With a smaller market capitalization, CNH has a larger chance of having small sales increases affecting shares. CNH has a larger presence in the agriculture equipment with its blue New Holland tractors and equipment.
CNH Global sells equipment under the following brands:
· Agricultural: Case IH, New Holland, Steyr
· Construction: Case, New Holland, Kobelco
CNH Global reported second quarter earnings this morning. Net sales were $5.0 billion, a 5% increase from last year. The results were negatively impacted by currency exchange rates. Earnings per share were reported as $1.47, up 10.5% from the $1.33 reported in last year's second quarter. Analysts had been expecting $1.49 in earnings on $5.27 billion in revenue. Part of the earnings miss came from the currency impacts. The company's earnings were split 80% agriculture and 20% construction.
Sales by business segment:
· Agriculture: $4.0 billion, +4.5%
· Construction: $1.0 billion, -2.8%
· Financial: $78 million, +50%
CNH continues to expand its presence in international markets. The company's products are available in 170 countries. CNH saw gains in Brazil and Latin America markets. New launches in Africa also saw gains in South Africa, Morocco, and Tunisia regions. CNH has been signing joint ventures, including recent ones in Brazil and Russia, to gain presence into new markets.
CNH is guiding for agriculture equipment sales to be up 0-5% for the fiscal year. The company expects the same 0-5% increase in construction equipment sales. Analysts are expecting full year earnings of $4.58 in fiscal 2012. The following years, analysts expect earnings of $4.88 on $20.27 billion in revenue.
In April, I pointed out that the success of CNH Global was also a good way to play Titan Machinery (TITN). Titan owns over 100 Case and New Holland dealerships around the United States and Europe. The company continues to buy out dealerships in neighboring regions and expand in Europe, most recently Romania. Titan has seen its shares come down from a new fifty two week high set around the time of that article. Shares of Titan might be worth picking up now at these levels as well.
Shares of CNH Global are up around 3% on the calendar year. Shares are trading around 30% off of their 52 week high of $47.74. Shares should trade closer to ten times this year's earnings, representing a price target of $45.80. This represents a gain of 18% by the end of the year. CNH Global has been a favorite of mine to play the agriculture boom and rising commodity costs.