CNH Industrial: Undervalued Understudy To John Deere

Jul. 06, 2022 6:49 PM ETCNH Industrial N.V. (CNHI)AGCO, DE5 Comments

Summary

  • CNHI is one of the major agriculture equipment providers worldwide. They have tried and tested brands, such as Case, which has been around for 180 years.
  • They recently spun off of the on-highway section of the business, allowing them to focus on their stronger, more profitable segments.
  • Growth opportunities in the industry are limited by a number of macro factors such as GDP rates, interest rates, trade policies, and even weather conditions.
  • Growing faster than the overall market (i.e., taking share) will not be easy. They face formidable competition in the form of John Deere in the Agriculture sector.
  • I believe the opportunity for CNHI lies primarily in margin improvement, particularly in the agriculture business where they trail their largest competitors by a considerable margin.

combine harvester harvesting cereals, sky with beautiful clouds

PavloBaliukh/iStock via Getty Images

Thesis

CNH Industrial N.V. (NYSE:CNHI) will not become the market leader in the near future, but I believe the agriculture sector is large enough to support more than one strong player. At its current price – CNHI offers

Segments

Segments (Author)

Brands

CNHI Brands (CNHI Website)

Pre vs Post demerger

Pre vs Post demerger (CNHI Website)

Revenue breakdown

Revenue breakdown (CNHI Website)

Agriculture revenue breakdown

Agriculture revenue breakdown (Created by author)

Market Shares of Ag

Ag Segment Revenue (Statista)

Ag Market Shares

Ag Market Shares (Statista)

GP Margins

GP Margins (Author)

OP Margin

OP Margin (Author)

Brand Loyalty

Brand Loyalty (Farm Equipment)

Chart
Data by YCharts

Alternative Propulsion

Alternative Propulsion (CNHI Website)

12 month forward P/E Ratios

12 month forward P/E Ratios (Bloomberg)

This article was written by

Flagship Asset Management is a boutique asset manager based in Cape Town, South Africa.We invest in a concentrated selection of high-conviction global equities. We follow a long-term, valuation based investment approach, and will only invest in businesses we consider to be high quality, and when our research leads us to believe they are priced below their fair value. Employees of Flagship Asset Management who contribute to Seeking Alpha in their personal capacities - are Kyle Wales.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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