Al Root
Shares of farm equipment maker CNH Industrial jumped Thursday after an investor who gained notoriety by betting against Lehman Brothers during the 2008-09 financial crisis disclosed a stake.
Greenlight Capital's David Einhorn told CNBC in a televised interview that he had just finished buying a position in the machinery maker.
"It's the kind of situation that absolutely nobody cares about right now because it's cheap and the news over the next period of time probably isn't going to be very good," said the hedge fund manager.
Wall Street expects CNH to earn about $1 a share in 2025, according to FactSet, down from a recent peak of $1.70 in 2023, due to falling agricultural commodity prices. Benchmark corn prices were north of $6 a bushel in 2023. They have averaged closer to $4 a bushel in 2024. Lower crop prices mean less income for farmers to spend on tractors and harvesting combines.
Farming, however, is cyclical and pricing is expected to turn around.
"Someone once told me that you pay a high multiple for [cyclical] trough earnings and a lower multiple for peak earnings," said Einhorn. That isn't the case for CNH. Einhorn feels he's getting a low multiple on low earnings. "We're about 10 times trough earnings and in a market where the price-to-earnings on average is about 23. That seems really good to me."
In the next upcycle, CNH earnings per share could hit $2 a share, Einhorn said, setting the stock up to double. For that to happen, he needs crop prices to rise.
Meanwhile, CNH is buying back stock. The dividend yield is 4.7%, according to FactSet.
CNH stock was up 6.4% in early trading on Thursday at $10.69 a share. S&P 500 and Dow Jones Industrial Average futures were down 0.1% and up 0.2%, respectively.
Coming into Thursday trading, CNH stock was down about 17% this year.
Shares of AGCO and Deere are in a similar situation, with earnings falling from recent peaks as well. Deere reported EPS of about $33 in calendar year 2023. That is expected to fall to about $22 in 2025. The numbers for AGCO are about $15.50 and $6.60, respectively.
AGCO and Deere's shares are down about 26% and 3%, respectively, this year.
Those two stocks might catch some investor interest after Einhorn's CNH comments. AGCO stock trades for about 13.5 times estimated 2025 earnings. Deere shares fetch 17.4 times.
Write to Al Root at allen.root@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 14, 2024 09:11 ET (14:11 GMT)
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