EUR 850.00 For Business Accounts Only

Morningstar | Narrow-Moat CNH Industrial Benefits From Strong Farmer Loyalty. See Updated Analyst Note from 28 Nov 2018

Our recent evaluation of CNH Industrial supports our narrow moat rating. The company's powertrain and agricultural equipment segments have demonstrated the ability to profit over economic cycles. On the agricultural equipment side of the business, the strength of the company’s brand, its lucrative parts business, and its finance arm all contribute to this robustness.

During our recent conversations with Case IH equipment owners, a few themes emerged: brand loyalty is strong, and serviceability is a crucial selling point. Farmers also expressed a desire to stick with what they know, as this simplifies operation and maintenance. Dealer relationships were shown to be important as well, because these are established over decades.

We believe CNH is well positioned to benefit from trends in the global agriculture industry. The United Nations estimates that the world population will grow approximately 1.0% annually until 2030 and global crop production will increase 1.4% annually over the same period. Much of the agricultural development in emerging economies will increase through mechanization and other advances in crop production.

CNH should also benefit from the near-term growth in housing starts, which we estimate will average approximately 7% annually for the next three years. Equipment such as skid steers, compact track loaders, and excavators are widely used in new-home construction.

Recently, CNH has demonstrated an interest in developing alternative fuel powertrains and commercial vehicles. We think this is astute, as the competitive dynamics in the commercial vehicle industry are changing. Major carriers are willing to explore more environmentally friendly vehicles, even if they are manufactured by startups such as Nikola or slightly more mature players such as Tesla. These developments are likely to raise CNH’s research and development costs.