CNH Global N.V. (CNH) is cashing in on record farming income. This Zacks #1 Rank (strong buy) saw sales rise 17% in the first quarter. It also has solid valuations, with a forward P/E of 14.7.
CNH Global manufactures agriculture and construction equipment for customers in 170 countries under the Case and New Holland brands.
The company recently announced it was investing $100 million to build a manufacturing plant in Argentina to make combines and tractors for the Latin American market. The local product lines are expected to be launched as early as the fourth quarter.
CNH Global Beat By 32% in Q1
On Apr 26, CNH Global reported its first quarter results and blew by the Zacks Consensus by 14 cents. Earnings per share were 57 cents compared to the consensus at 43 cents. It was the third consecutive beat.
Sales rose to $3.8 billion from $3.2 billion in last year’s quarter. Sales growth was boosted by cash spending farmers as agriculture commodities prices rose and higher construction equipment demand in the Americas and the Asia Pacific regions.
Agriculture equipment sales dominated the quarter at 81% compared to 19% for construction. North American sales were 40% of the revenue for the period. Asia Pacific was the smallest market at just 11%.
Agriculture sales rose 10% compared to last year. Combines were hot, rising 25%, including 37% in North America.
Construction equipment surged 48% compared to last year with light equipment jumping 44% and heavy equipment climbing 51%.
Gains were seen across all regions, including rising 39% in Latin America driven by strong demand from both public and private sector projects.
Full Year Outlook Still Looks Good
Farming has stayed strong so far in 2011 and is expected to remain so for the balance of 2011. One fly in the ointment is the effects of the Japanese earthquake.
The company expects component parts supply disruptions in the second and third quarters primarily in the construction equipment segment. The disruption could negatively affect full year revenues by the range of $300 to $500 million.
That being said, CNH re-affirmed its full year revenue target of around 10% growth.
Zacks Consensus Estimates Rise
Analysts have been raising 2011 and 2012 estimates since the earnings report.
3 estimates have moved higher for 2011, pushing the Zacks Consensus up to $2.80 from $2.69 in the last month.
That is earnings growth of 35%.
Earnings are expected to grow another 24% in 2012. The 2012 Zacks Consensus Estimate rose 6 cents to $3.48 per share in the last 30 days.
Valuations Still Look Good
CNH Global isn’t very expensive. While it’s P/E is just below the 15x cut-off I use for value, it’s price-to-book is only 1.3 which is well within the value parameters of 3.0. It is also far below that of peer Deere (DE) which has a price to book of 4.9.
Its price-to-sales (P/S) ratio also strongly flashes “value” at 0.6. Anything below 1.0 usually indicates value. Deere’s P/S is 1.3.
Shares No Longer At the High
After hitting 3-year highs in February, shares have pulled back in recent weeks.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the Turnaround Trader and Insider Trader services. You can follow her at twitter.com/traceyryniec.
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