CNH Industrial shares rise in pre-market trade after Raymond James upgrade

Investing.com -- Shares of CNH Industrial (NYSE:CNH ) rose 1% in pre-market trading on Tuesday following a favorable upgrade from Raymond James, which revised the stock to an "outperform" rating from a "market perform.” 

The revised outlook comes after CNH's prolonged underperformance, which Raymond James analysts now view as an attractive entry point.

The analysts from Raymond James have about a price target of $14 for CNH, suggesting a potential upside of approximately 34%, including a 4.4% dividend yield. 

As per the analysts, this potential return is supported by the expectation that CNH will achieve margin resilience through cost-cutting efforts and positive industry pricing, particularly in agricultural equipment, a sector where CNH holds major market share.

Further boosting the outlook is an expected improvement in grain markets, which Raymond James believes could lead to a narrowing valuation gap between CNH and its primary competitor, Deere & Company (NYSE:DE ). 

Raymond James sees CNH benefiting from its technology investments, especially its precision agriculture initiatives, which are expected to yield stronger operational efficiencies in the coming years.

Raymond James projects that CNH will see cost reductions in 2025, amounting to an estimated $0.10 per share, or about 10%. 

The analysts also anticipate CNH’s price-to-earnings ratio to reach around 11x 2025 earnings per share, which is viewed as an attractive entry point considering the cyclical challenges in the agricultural machinery sector.

Despite the current oversupply of new and used inventories on dealer lots and soft demand forecasts for the upcoming retail sales year, Raymond James believes CNH’s valuation already reflects this investor skepticism. 

The stock, currently trading at $10.80 as of September 23, 2024, offers a solid risk/reward profile, with potential upside from a combination of idiosyncratic cost savings and sector-wide recovery by mid-2025.

CNH shares, which have a 52-week range of $9.28 to $13.30, have faced challenges due to uncertainties in global grain markets and fluctuating farmer profits. 

However, with expectations of grain market recovery and supportive macroeconomic factors, such as potential interest rate cuts and favorable U.S. tax policies, Raymond James sees an opportunity for CNH to outpace its recent sluggish performance and align more closely with its peers.

Source: Investing.com