BUSINESS
CNH Industrial N.V. designs, produces, markets, sells, and finances agricultural and construction equipment, trucks, commercial vehicles, buses, and specialty vehicles in North America, Europe, South America, and internationally. It operates through five segments: Agriculture, Construction, Commercial and Specialty Vehicles, Powertrain, and Financial. The Agriculture segment provides farm machinery and implements that include two-and four-wheel drive tractors, crawler tractors, combines, cotton pickers, grape and sugar cane harvesters, hay and forage equipment, planting and seeding equipment, soil preparation and cultivation implements, and material handling equipment under the New Holland Agriculture, Case IH, STEYR, Miller, Kongskilde, Overum, K-Line, and JF brands.
INVESTMENT RATING
With future capital returns forecasted to exceed the cost of capital, CNHI is expected to continue to be a major Value Builder.
CNH Industrial N.V. has a current Value Trend Rating of D (Negative).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing inconsistent signals. CNH Industrial N.V. has a neutral Appreciation Score of 44 but a poor Power Rating of 27, with the Negative Value Trend Rating the result.
CNH Industrial N.V.’s stock is selling below targeted value. The current stock price of $12.55 compares to targeted value 12 months forward of $14.
This neutral appreciation potential results in an appreciation score of 44 (56% of the universe has greater appreciation potential.)
CNH Industrial N.V. has a Power Rating of 27. (CNHI’s poor Power Rating indicates that it only has a higher likelihood of achieving favorable investment performance over the near to intermediate term than 27% of companies in the universe.)
Factors contributing to this poor Power Rating include: recent price action has been unfavorable; the trend in CNHI’s earnings estimates has been unfavorable in recent months; and the Farm Machinery and Equipment comparison group is in a slightly weakened position currently.
INVESTMENT PROFILE
CNHI’s financial strength is above average. Financial strength rating is 64.
Relative to the S&P 500 Composite, CNH Industrial N.V. has neutral Growth/Value characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that CNHI is extremely high risk. High forecasted profitability is a positive for CNHI. Relative weaknesses include: high stock price volatility, high financial leverage, low expected growth, and high earnings variability. CNHI’s valuation is moderate: low dividend yield, low P/E ratio, and moderate price/book ratio. CNHI has low market capitalization.
CURRENT SIGNALS
CNH Industrial N.V.’s current operations are strong. Return on equity is rising, reflecting: widening pretax margins; and rising leverage.
CNH Industrial N.V.’s current technical position is mixed. The stock price is in a 2.8 month up move. The stock has appreciated 23.3% from its prior low. The 200 day moving average is in a downtrend. The stock price is above its 200 day moving average.
ALERTS
In light of this new information we are reviewing our current Overall Rating of D. This review will be completed in the next several days.
CNH Industrial N.V. (NYSE: CNHI) has reported earnings for its fourth fiscal quarter (ending December 31) of $0.47 versus $0.44 for the same period a year ago. For the latest four quarters through December 31, E.P.S. were $1.78 versus $1.50 for the same period a year ago.
CNH Industrial N.V. (NYSE: CNHI) stock closed at $12.55 on 2/14/24 after a very large increase of 6.2%. Moreover, above average trading volume at 135% of normal accompanied the advance. The stock has risen 1.0% during the last week but has been weak relative to the market over the last nine months.
CASH FLOW
In 2022, CNH Industrial N.V. experienced a very significant reduction in cash of -$1,733 million (-25%). Sources of cash were much lower than uses. Cash generated from 2022 EBITDA totaled +$2,527 million. Non-operating sources contributed +$1,518 million (+60% of EBITDA). Cash taxes consumed -$831 million (-33% of EBITDA). Re-investment in the business amounted to -$1,517 million (-60% of EBITDA). On a net basis, debt investors removed -$1,550 million (-61% of EBITDA) while equity investors withdrew -$1,880 million (-74% of EBITDA).
CNH Industrial N.V.’s Non-operating Income, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by an uptrend for the Cnh Industrial N.V. Peer Group. (Since 2020 Non-operating Income, %EBITDA has experienced very sharp improvement.) In most years, CNH Industrial N.V. was in the top quartile. Currently, CNH Industrial N.V. is upper quartile at +60% of EBITDA (+$1,518 million).
CNH Industrial N.V.’s Cash Taxes, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by stability for the Cnh Industrial N.V. Peer Group. (Since 2019 Cash Taxes, %EBITDA has experienced a very sharp decline.) In most years, CNH Industrial N.V. was in the lower quartile and third quartile. Currently, CNH Industrial N.V. is lower quartile at -33% of EBITDA (-$831 million).
CNH Industrial N.V.’s Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Cnh Industrial N.V. Peer Group. In most years, CNH Industrial N.V. was in the top quartile and third quartile. Currently, CNH Industrial N.V. is substantially below median at -60% of EBITDA (-$1,517 million).
CNH Industrial N.V.’s Debt Investors, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Cnh Industrial N.V. Peer Group. In most years, CNH Industrial N.V. was in the lower quartile and top quartile. Currently, CNH Industrial N.V. is substantially below median at -61% of EBITDA (-$1,550 million).
CNH Industrial N.V.’s Equity Investors, %EBITDA has suffered a very strong overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Cnh Industrial N.V. Peer Group. In most years, CNH Industrial N.V. was in the third quartile and second quartile. Currently, CNH Industrial N.V. is lower quartile at -74% of EBITDA (-$1,880 million).
CNH Industrial N.V.’s Change in Cash, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by a downtrend for the Cnh Industrial N.V. Peer Group. In most years, CNH Industrial N.V. was in the second quartile and lower quartile. Currently, CNH Industrial N.V. is lower quartile at -69% of EBITDA (-$1,733 million).
CNH Industrial N.V.’s Cash, %Revenue has exhibited a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Cnh Industrial N.V. Peer Group. (Since 2020 Cash, %Revenue has experienced a very sharp decline.) In most years, CNH Industrial N.V. was in the second quartile and third quartile. Currently, CNH Industrial N.V. is slightly above median at +24%.
PROFITABILITY
CNH Industrial N.V.’s return on equity has improved very significantly since 2013. The current level is 29.4% versus the high of 13.8% and the low of -10.0%.
The key to the story for CNHI is a little change in pretax operating return significantly offset by a very strong positive trend in non-operating factors.
The productivity of CNH Industrial N.V.’s assets declined over the full period 2013-2023: asset turnover has experienced a downtrend.
Reinforcing this trend, pretax margin has experienced a downtrend even as it experienced a very sharp recovery after the 2020 low.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
CNH Industrial N.V.’s return on equity is at the upper quartile (29.4%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is at the upper quartile (7.1%) reflecting asset turnover that is at median (0.52X) and pretax margin at the upper quartile (13.7%).
Tax “keep” rate (income tax management) is above median (76.6%) resulting in after tax return on assets that is at the upper quartile.
Financial leverage (leverage) is at the upper quartile (5.39X).
GROWTH RATES
There are no significant differences between CNH Industrial N.V.’s longer term growth and growth in recent years.
CNH Industrial N.V.’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been -2.2% per year.
Total asset growth has been -1.6% per year.
Annual E.P.S. growth has been 18.4% per year.
Equity growth has been 5.1% per year. (More recently it has been 16.7%.)
CNH Industrial N.V.’s consensus growth rate forecast (average of Wall Street analysts) is 2.7% — in line with the average of the historical growth measures.
Relative to the Cnh Industrial N.V. Peer Group, CNH Industrial N.V.’s historical growth measures are erratic. E.P.S. growth (18.4%) has been upper quartile. Equity growth (5.1%) has been slightly above median. Revenue growth (-2.2%) has been substantially below median. Total asset growth (-1.6%) has been substantially below median.
Consensus growth forecast (2.7%) is lower quartile.
PRICE HISTORY
Over the full time period, CNH Industrial N.V.’s stock price performance has been variable and significantly below market. Between October, 2013 and February, 2024, CNH Industrial N.V.’s stock price rose +7%; relative to the market, this was a -62% loss. Significant price moves during the period: 1) March, 2020 – December, 2021: +246%; and 2) January, 2016 – January, 2018: +135%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -32.3% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through January, 2024 of -32.3% is lower quartile relative to CNH Industrial N.V. Peer Group.
Current 5-year total return performance of 8.2% is slightly below median relative to the S&P 500 Composite.
Through January, 2024, with slightly below median current 5-year total return of 8.2% relative to S&P 500 Composite, CNH Industrial N.V.’s total return performance is at median relative to CNH Industrial N.V. Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, CNHI’s overall valuation is quite low. The highest factor, the price/equity ratio, is near the lower quartile. Ratio of enterprise value/assets is near the lower quartile. Ratio of enterprise value/revenue is lower quartile. Ratio of enterprise value/earnings before interest and taxes is lower quartile. The lowest factor, the price/earnings ratio, is lower quartile.
Relative to CNH Industrial N.V. Peer Group, CNHI’s overall valuation is quite low. The highest factor, the ratio of enterprise value/assets, is lower quartile. Price/equity ratio is at the lower quartile. Ratio of enterprise value/earnings before interest and taxes is lower quartile. Ratio of enterprise value/revenue is at the lower quartile. The lowest factor, the price/earnings ratio, is lower quartile.
CNH Industrial N.V. has a major value gap compared to the median valuation. For CNHI to rise to median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 1.87X to 2.97X. If CNHI’s ratio of enterprise value/revenue were to rise to 2.97X, its stock price would be lower by $19 to $31.
For CNHI to hit lower quartile valuation relative to the CNH Industrial N.V. Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 1.87X to 1.86X. If CNHI’s ratio of enterprise value/revenue were to fall to 1.86X, its stock price would decline by $-0 from the current level of $13.
VALUE TARGETS
With future capital returns forecasted to exceed the cost of capital, CNHI is expected to continue to be a major Value Builder.
CNH Industrial N.V.’s current Price Target of $15 represents a +16% change from the current price of $12.55.
This neutral appreciation potential results in an appreciation score of 44 (56% of the universe has greater appreciation potential.)
With this neutral Appreciation Score of 44, the low Power Rating of 27 results in an Value Trend Rating of D.
CNH Industrial N.V.’s current Price Target is $15 (+22% from the 2022 Target of $12 and +16% from the 02/14/24 price of $12.55). This rise in the Target is the result of a -12% decrease in the equity base and a +39% increase in the price/equity multiple. One Driver has a positive impact on the price/equity multiple, one has a negative impact, and one has no effect. The forecasted increase in return on equity has a very large positive impact on the price/equity multiple. The forecasted growth has no impact. The forecasted increase in cost of equity has a very slight negative impact.
PTR’s return on equity forecast is 35.3% — above our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2014 and 2022. The current forecast is significantly above the 2020 low of 7%.
PTR’s growth forecast is 0.0% — in line with our recent forecasts. Forecasted growth exhibited a modest, erratic decline between 2014 and 2022. The current forecast is well below the 2021 peak of 5%.
PTR’s cost of equity forecast is 12.4% — in line with recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2014 and 2022. The current forecast is well above the 2020 low of 4.5%.
At CNH Industrial N.V.’s current price of $12.55, investors are placing a negative value of $-0 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 0.0% per year, and a return on equity of 25.3% versus a cost of equity of 12.4%.
PTR’s 2024 Price Target of $15 is based on these forecasts and reflects an estimated value of existing assets of $11 and a value of future investments of $3.
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