Agricultural, construction and industrial equipment manufacturer CNH Industrial N.V. (CNHI) has maintained its growth trajectory despite a coronavirus-pandemic-induced slump in demand. The company has reported impressive financial performance in its last reported quarter and has been scaling its operations to gain from the current industry tailwinds.

CNHI’s tangible book value has increased at a CAGR of 32.1% over the past three years, while its total assets rose marginally over this period. The stock has gained 139% over the past year, and 20.9% year-to-date.

As the demand for construction and industrial equipment rises, and with the U.S. government moving to pass a proposed $2.3  trillion infrastructure bill, CNHI’s revenue and earnings are expected to rise significantly. The company, which is based in London, is also poised to benefit from United Kingdom’s “once-in-a-lifetime” proposed £22 billion infrastructure spending, which comprises £10 billion in capital investments and £12 billion in loan guarantees, as it is based in London.

Click here to check out our Industrial Sector Report for 2021

Here’s what we think could shape CNHI’s performance in 2021:

Tremendous Growth Potential

Analysts expect the company’s EPS to rise 316.7% in its fiscal first quarter, 428.6% in the current quarter, ending June 2021, and 175% in its fiscal year 2021. CNHI has an impressive earnings surprise history also; it beat consensus EPS estimates in three  of the trailing four quarters. The consensus revenue estimate of $6.40 billion for the about-to-be-reported quarter represents  a 17.2% improvement year-over-year. Furthermore,  the Street expects revenues to improve 64.1% in the second quarter (ending June 2021) and 7.4% in the current year (ending December 2021).

Robust Financials

CNHI managed to weather  pandemic-driven business disruption and  increase its sales and earnings significantly. Its consolidated revenues rose 10% year-over-year to $8.50 billion in the fourth quarter, ended December 31, 2020. This can be attributed to a 12% rise in net sales from industrial activities, and a 17% rise in sales from the ‘Agriculture’ segment. Its non-GAAP adjusted EBIT from industrial activities stood at $520 million for the quarter, up 73% year-over-year. The company’s non-GAAP net income increased 55% from its  year-ago value to $432 million, while its EPS improved 50% from the same period last year to $0.30. CNHI’s cash and cash equivalents balance for fiscal 2020 increased 80% from the same period last year to $8.79 billion.

The company maintains impressive profitability margins also. Its trailing-12-month gross profit margin and EBITDA margin were 14.3% and 5.89%, respectively. CNHI’s trailing-12-month levered free cash flow and CAPEX/sales of 49.83% and 7.11%, respectively, compare favorably with  industry averages.

Consensus Rating and Price Target Indicate Marginal Upside

Of the five Wall Street analysts that rated the stock, three rated it Buy while two rated it Hold. The stock has a median price target of $17, indicating a potential upside of 9.5%. CNHI has a high price forecast of $19 and low forecast of $14.

POWR Ratings Reflect Rosy Prospects

CNHI has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

CNHI has an A  grade for Growth, and B for Value and Sentiment. The company’s impressive financial performance in its  last reported quarter despite the pandemic, and its projected revenue and earnings outlook, justify the Growth grade. Also,  the stock’s lower-than-industry non-GAAP forward price-to-earnings multiple of 19.53 and favorable analyst sentiment are in sync with the Value and Sentiment grades.

Of the 87 stocks in the A-rated Industrial – Machinery industry, CNHI is ranked #29. In addition to the grades I’ve highlighted, one  can check out CNHI Ratings for Momentum, Quality, and Stability here.

Click here to view the top-rated stocks in the Industrial – Machinery industry.

Bottom Line

Infrastructure spending is expected to rise significantly in the coming months with both private and government funding. And as the demand for construction equipment increases globally, CNHI’s revenues should rise. The stock’s tremendous growth potential makes it currently undervalued with respect to its peers, thereby making it an ideal investment bet now.

Click here to check out our Industrial Sector Report for 2021

CNHI shares were trading at $15.65 per share on Tuesday morning, up $0.13 (+0.84%). Year-to-date, CNHI has gained 21.88%, versus a 10.52% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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