CNH Global N.V. (CNH)
“The European currency is hovering around its four- year low. The euro first started losing relative value at the onset of the financial crisis. In times of trouble or uncertainty, investors flock to traditional so-called safe havens such as the U.S. dollar and gold. When the debt problems among some...
“The European currency is hovering around its four- year low. The euro first started losing relative value at the onset of the financial crisis. In times of trouble or uncertainty, investors flock to traditional so-called safe havens such as the U.S. dollar and gold. When the debt problems among some members of the European Union came to light, it put even more pressure on the euro. But the euro’s decline is a big fat silver lining for some European companies. The prices of European products have now become cheaper in the world market—especially for places with strong currencies such as the U.S. and some countries in Asia. European companies that compete with U.S. and Asian companies are now finding they have a big price advantage.
With a low euro, European export companies have a real opportunity to steal market share from their non-European competitors.
During the past month, I looked at a number of exporting European companies. In the electronic equipment sector, both the German company Siemens AG (NYSE: SI) and the Dutch company Koninklijke Philips Electronics NV (NYSE: PHG) were contenders. Pharmaceutical companies like France’s Sanofi-Aventis (NYSE: SNY) and Switzerland’s Novartis AG (NYSE: NVS) also got close scrutiny. But these are pretty crowded sectors with many, many competitors. I wanted a company that was going head-to-head with just a few large— preferably U.S.-based—players. And I finally found it, down on the farm. This company competes with U.S. blue chips Deere (NYSE: DE) and Caterpillar (NYSE: CAT) in the farm and heavy equipment export market. And with a cheap euro, this Dutch firm’s battle is getting a whole lot easier. ...
CNH Global N.V. (CNH 22.52 NYSE)
“Even though it is only about twice the size of New Jersey, the Netherlands is the world’s third-largest agricultural exporter, behind the United States and France. The county’s agricultural performance is achieved by having one of the most highly mechanized farm systems in the world. So it makes sense that the Netherlands is home to one of the top agriculture and construction companies in the world. CNH Global was created in 1999 through the merger of New Holland and the Case Corporation. CNH is the world’s second- largest agricultural equipment manufacturer behind Deere and third-largest construction equipment supplier, trailing Caterpillar and Komatsu Ltd.
“CNH has roughly 11,600 dealers that sell its equipment in 170 countries. North America accounts for 43% of the company’s agricultural equipment sales and 20% of its construction equipment sales. During the past three quarters, CNH has surprised Wall Street analysts, turning in better-than-expected earnings reports. In the most recent quarter ended March 31, 2010, the company earned $0.16 per share versus Wall Street’s expectation of just $0.02 per share.But it’s hard to fault the analysts for underestimating CNH’s performance. In the first quarter of 2009, the company lost $0.53 per share as the credit crisis and global economic slowdown took their toll.
“But agricultural and construction equipment sales have been rebounding. Europe remains weak. But low interest rates and better credit availability in the United States have kept demand stable. Large- scale expansion of agriculture in Latin America is driving double-digit demand growth for agricultural equipment. And infrastructure spending in China and the other emerging markets is boosting construction equipment sales. In the first quarter, CNH’s equipment revenues were up 6.1% from the first quarter in 2009. CNH did lose some tractor market share in North America in the first quarter. Much of it can be attributed to inventory cutbacks of its current smaller tractor models as the company gets ready to introduce new models later this year. With an upgraded product line and a cheap euro, CNH is likely to turn the tables on Deere in the near future.
“CNH recently issued new debt. The proceeds of the $1.5 billion five-year notes will be used to pay off a $500 million loan to Fiat, CNH’s majority shareholder, and to retire shorter term debt. This should result in little material change to the financial condition of the company and erases any worries associated with its ability to refinance short-term obligations. Continuing concerns about the world economy may weigh on this stock in the short term. But CNH’s ability to steal market share away from its U.S. competitors should bode well for this company for years to come. CNH’s stock price has been volatile. Investors looking for strictly defensive positions may need to let this one sit on the back burner for a while. But to some extent, the headlines that pressure this stock are the very same headlines that pressure the euro—giving CNH a better opportunity to grab its competitors’ business. Buy under $25 per share.”
Amy Calistri, StreetAuthority Stock of the Month