Understanding the Differences Between CNH Industrial and Deere (original) (raw)

While both compete in ag and construction equipment, the geographic exposure of their business makes all the difference.

Trimming 3 Positions and Adding a Farm Name

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* CNH Industrial results and guidance back our Deere, United Rentals, and Vulcan Materials plays

* CNH: High horsepower ag equipment and North American construction remain strong

* CNH's business is hampered by the softening South American market; Deere has far less exposure but far more to the North American markets

Action Alerts PLUSholding Deere & Co's (DE) shares are lower in response to quarterly results from ag and construction equipment competitor CNH Industrial (CNHI) , which slightly missed September quarter results and guided the current quarter below expectations.

Much like we did last week with quarterly results from Esteé Lauder (EL) and their implications for Coty (COTY) , we need to understand differences between CNH and Deere.

While both compete in ag and construction equipment, the geographic exposure of their business makes all the difference, especially since CNH's issue stems primarily from weakening demand in South America. That market accounts for 20% of CNH's ag and construction equipment revenue, which is roughly double that for Deere.

Moreover, all the areas of strength CNH cited during its earnings call are in high horsepower ag and construction equipment in North America, 60% of Deere's revenue vs. 40% for CNH. We already took into account the softening outlook for global low horsepower ag equipment when we trimmed our DE price target to 450from450 from 450from500 following quarterly results from AGCO (AGCO) .

On its earnings call, CNH shared its high horsepower ag equipment book is fully booked for the balance of the year and the order backlog is above pre-pandemic levels. Management also pointed out demand for precision ag technologies is vibrant as well. Both comments support our bullish stance on DE shares while CNH's confirmation for the strength in North American construction equipment also supports the shares.

Those comments about North American construction demand and activity also add another dimension of support for our positions in United Rentals (URI) and Vulcan Materials (VMC) .

Action Alerts PLUS is long DE, COTY, URI, VMC.