CNH Industrial N.V.’s (CNHI - Free Report) upgraded product offerings and digitalization initiatives are aiding the firm to secure new business contracts. The firm continues to engage in share buybacks and regular dividend payouts in almost every quarter, in order to boost investors’ confidence. However, declining projections for net sales and rising net debt for industrial activities are concerns. The company’s shares have gained 19.8% year to date, outperforming its industry’s 12.6% rise.
Let’s delve deeper to find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Aiding the Stock?
The company is developing several products and technologies across all segments to remain at par with the latest technological advancements and emission-control procedures. The firm’s latest launches, including Iveco’s new daily minibus — AFS Connect Magnum series tractors by agricultural equipment provider Case IH, and methane-powered wheel loader idea — Project TETRA by the construction equipment segment, are likely to boost its growth prospects. Upgraded product offerings will aid the company in achieving new business contracts.
CNH Industrial is working on a business plan to combat approaching megatrends that are affecting the industry, which includes digitalization, electrification and automation. The company has been working on a new organizational structure that aims to make it more customer-centric and agile. Apart from this, it looks after ways of productivity improvements while keeping a check on costs. CNH Industrial is also analyzing its global manufacturing footprint, capital allocation, R&D investments and other long-term initiatives.
The company regularly acquires and divests dealerships and franchises to expand its business. This November, CNH Industrial completed the acquisition of ATI Inc. which will provide access to factory-fit industry-leading track technology to the customers of Case IH and New Holland Agriculture. It also acquired K-Line Ag to enhance the crop-production portfolios of Case IH and New Holland Agriculture. The firm sold its Truckline parts business to Bapcor this year, in order to ensure continuity of service for Australia’s commercial vehicle customers. As part of its five-year plan, the company also spun-off its truckmaker Iveco as a separate business to double the profit margin. CNH Industrial aims at operational efficiency through targeted restructuring efforts in order to boost profit and streamline business.
CNH Industrial engages in share buybacks and regular dividend payouts in almost every quarter which boosts investors’ confidence. In the first nine months of 2019, the company paid a dividend of 20.3 cents per share compared with the 17.3 cents paid in 2018. With the expiration of the previous-buyback program, the firm recently announced a new share repurchase program of up to $700 million to optimize its capital structure.
CNH Industrial remains optimistic for the agricultural markets going into 2020, given that the U.S. farmers took advantage of the recent improvement in commodity prices, lower commodity stock levels expected at the end of 2019, sustained U.S. pharma cash flows, use of CapEx, depreciation tax incentives, as well as the apparent need to replace older equipment to improve yields. All of this will spur equipment demand in the latter part of 2019, as well as going into 2020.
What’s Pulling the Stock Down?
The company’s bleak guidance for 2019 is a dampener. For the current year, it now projects roughly $26.5-$27 billion in Industrial Activities’ net sales, down from the prior guidance of $27-$27.5 billion. Net debt of Industrial Activities at the end of 2019 is expected between $400 million and $600 million, up from the prior view of $200-400 million.
Rising capital expenditure is a concern for CNH Industrial. This upswing is resulting from rising investments to develop products and technologies, which includes funding for precision farming platform and launch of the Stage V emission requirement compliant engine applications. Further, investments for capacity expansion, high material costs, overhead expenses and tariff headwinds add to the company’s expenses, which are hampering profits. For 2019, it expects R&D and capital spending to flare up to 4% and 2% of sales, respectively.
After-effects of unfavorable weather in Australia and Northern Europe, and extreme wet conditions in North America leading to late planting are likely to hurt CNH industrial’s agricultural end markets in this year. As agricultural equipment is the largest sales contributor in net Industrial sales, a dismal business is a concern.
CNH Industrial has a global presence through its four segments, making it vulnerable to foreign-the exchange volatility. Also, its strong presence in EMEA might witness headwinds in case of a no-deal Brexit. This apart, escalating U.S.-Sino trade tensions have been impacting the company’s performance. Rising costs will dent margins if the company is unable to pass the price increases to customers. While a partial trade deal is currently being worked out between the two nations, new tariffs are likely to be effective if no agreement is in place. The possibility of the imposition of new tariffs on imports is a concern.
Stocks to Consider
Some better-ranked stocks in the Auto-Tires-Trucks sector are BRP Inc. (DOOO - Free Report) , Spartan Motors, Inc. and SPX Corporation (SPXC - Free Report) . While BRP and Spartan Motors sport a Zacks Rank #1 (Strong Buy), SPX carries a Zacks Rank #2 (Buy), currently. You can see the complete list of today’s Zacks #1 Rank stocks here.
BRP has a projected earnings growth rate of 18.9% for the current year. Its shares have gained around 51.3% over the past year.
Spartan Motors has an estimated earnings growth rate of 85.42% for the ongoing year. The company’s shares have surged 119.2% in a year’s time.
SPX has an expected earnings growth rate of 23.2% for 2019. The company’s shares have appreciated 70.5% in the past year.
5 Stocks Set to Double
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