CNH Global N.V. (CNH) recently beat the Zacks Consensus Estimate for the 9th quarter in a row as full year revenue rose 25%. Yet shares of this Zacks #1 Rank (Strong Buy) got crushed on the news. Is this a buying opportunity in the agriculture equipment sector?
CNH Global manufactures agriculture and construction equipment for customers in 170 countries under the Case and New Holland brands.
CNH Global Beat By 8.3% in Q4
On Jan 31, CNH Global reported its fourth quarter and full year 2011 results. For the 9th quarter in a row the company surprised on the Zacks Consensus. That’s an impressive track record. Earnings per share were 78 cents compared to the consensus of 72 cents.
Net sales for the year jumped 25% to $18.1 billion as both the agriculture and construction segments saw strong results. The Agricultural equipment segment saw sales rise 23% to $14.2 billion while the Construction equipment segment saw sales climb 32% to $3.9 billion. Ag sales were up 24% in the fourth quarter.
North America continued to be its largest market with 42% of sales. EAME & CIS was 32%, Latin America was 16% and APAC was 10% of sales.
It’s no surprise the agricultural market has been strong as North American farmers had record income from high crop prices in 2011.
But the company also saw a continued recovery in the construction equipment segment with sales rising 39% in the quarter. Light equipment was up 30% and heavy equipment rose 23%. Sales were also up across geographic regions.
Expanding in China
The company previously had announced that it would build a $90 million manufacturing plant in Harbin. The facility will make high horsepower tractors, combine harvesters and other machinery.
This facility will be the third in China. The company already assembles high horsepower tractors in Harbin and makes low to medium horsepower tractors in Shanghai.
Outlook for 2012
There were no surprises in the outlook. CNH Global is still bullish on its markets. Agricultural equipment demand is expected to be flat to up 5% and construction equipment demand is forecast to continue with its recent improvement.
The analysts are projecting another year of double digit earnings growth. The 2012 Zacks Consensus Estimate has risen to $4.25 from $4.19.
That is earnings growth of 11.1% as the company made $3.83 in 2011.
CNH Is Still Cheap
Shares got REALLY cheap last summer in the big stock sell-off. But even with the recent rebound, CNH is clearly still a value stock.
In addition to a forward P/E under 10, which is much lower than its peers who average 12.3x, CNH Global has a price-to-book ratio of 1.3.
A P/B ratio under 3.0 usually means a company is undervalued.
The company also has a really low price-to-sales ratio of just 0.5. A P/S ratio under 1.0 can indicate that a company is undervalued.
To top it off, CNH Global has other strong fundamentals, including a solid 1-year return on equity (ROE) of 12.1%.
The recent share sell-off off the earnings report could present a buying opportunity for investors who are looking for a value play on the agriculture sector. The ag “story” is still in play in 2012.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her at traceyryniec.
