CNH Global N.V. - Value

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The agriculture and construction equipment makers have been in the sweet spot. CNH Global N.V. ( CNH ) is expected to grow earnings by the double digits as global farmers reap record income. But you can pick up this Zacks #1 Rank (Strong Buy) on the cheap as it trades with a P/S ratio of only 0.5.

Fiat Industrial To Acquire CNH

On May 30, 2012, CNH Global announced it had received a proposal from Italy-based Fiat Industrial S.p.A. regarding a combined transaction of the companies.

Fiat currently owns 88% of CNH, which manufactures agriculture and construction equipment for customers in 170 countries under the Case and New Holland brands. It is based in the Chicago suburbs.

Fiat Industrial makes trucks. It was spun off from Fiat in 2010. The merger will combine the industrial with the construction and agriculture equipment makers.

The new company will be listed on the NYSE and also on a secondary European market. It's headquarters may leave Italy.

Shareholders in both companies will get shares in the new entity.

Another Beat In The First Quarter

On Apr 25, CNH announced first quarter results and surprised by 52.1%. It kept alive a substantial earnings surprise streak that has lasted 10 quarters.

Earnings per share were $1.11 compared to the consensus at just 73 cents. This was 76.2% higher than the first quarter of 2011 when the company made only 63 cents.

Sales rose 22% to $4.6 billion. Both agriculture and construction showed gains in the quarter. Agriculture, which has been hot for the last few years, jumped 18% to $3.6 billion as planted acreage rose on higher commodity prices.

Construction equipment sales climbed 41% mainly due to increased demand in the Americas where sales more than doubled.

North America was the largest market with 45%, followed by EAME & CIS at 31%.

Outlook For 2012 Remains Bullish

In April, CNH was bullish about the agriculture and construction sectors. Agriculture equipment demand was expected to be flat to up 5% on firm commodity prices.

Construction equipment demand is forecast to continue with its recent recovery, with sales rising 5% to 10% for the year.

2012 Zacks Consensus Estimate Rises

The analysts have been bullish on 2012 since the first quarter earnings report in April.

In the last 30 days, the Zacks Consensus rose 2.8% to $4.69.

That is earnings growth of 22.3% as the company made $3.83 per share in 2011.

Still Tons of Value

CNH has been a value stock for some time. I have been covering it for over a year. Shares took a dive in 2011 but recovered some of it in 2012. Still they haven't retaken the previous high.

The company has a price-to-earnings ratio of just 8.8. That is well below the 15x cut-off I use for value stocks. It also puts it squarely between its two main competitors. Deere ( DE ) has a forward P/E of 9.2 and AGCO ( AGCO ) trades at 7.5x.

CNH also has a low price-to-book ratio of 1.2. A P/B ratio under 3.0 usually indicates value. It is also under both Deere's P/B of 4.1 and AGCO's at 1.3.

The Fiat/CNH transaction should be completed by the end of the year. Investors looking for a solid value play in the agriculture sector should take a look at CNH.

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 on twitter at @TraceyRyniec .


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Stocks

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