CNH Industrial: Well-Managed Post-Spinoff RemainCo at Discount

Brian Hennessey of Alpine Woods Capital presented his in-depth investment thesis on CNH Industrial (CNHI) at Best Ideas 2022.

Thesis summary:

CNH Industrial is the newest major U.S. listed pure-play agriculture equipment company following the spinoff of its On-Highway business Iveco Group, which started trading on January 3rd, 2022.

At 10.5x next year’s estimated earnings, CNHI (the remainco) trades at a greater than 25% discount to its blue chip peers, Deere and Caterpillar. Fundamentals in the agriculture equipment industry are strong, with grain prices near historic highs, farmer balance sheets in great shape, inventory of new and used equipment at decade lows, and prices of used equipment at all time highs.

The replacement cycle in the US is arguably in the middle innings and the restocking of inventory alone should provide an underappreciated tailwind for the next couple years.

CEO Scott Wine took the helm in January 2021 after a transformational success story at Polaris Industries. The “self help” potential here is similar, with CNHI undermanaging its assets for decades. With upside to consensus estimates in 2022 and 2023 and a partial closing of the peer discount, the stock has 40+% upside to $24 per share.

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About the instructor:

Brian Hennessey began his career in high yield fixed income research at Putnam Investments, then climbed the quality spectrum to investment grade fixed income at Partner Re Asset Management, then whet his appetite in event driven, arbitrage and distressed hedge fund strategies at Tribeca Global Management (unit of Citi Alternative Investments) and Litespeed Partners. Since 2008, Brian has been at Westchester-based asset manager Alpine Woods Capital Investors LLC, currently as Co-Chief Investment Officer and manager of several long biased hedge funds focused on growth-oriented “deep moat” companies.

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