Morgan Stanley Upgrades CNH Industrial, Likes Margin Opportunity

A new CEO bent on cutting costs and expectations for new margin targets at an upcoming analyst day led Morgan Stanley to upgrade agriculture equipment company CNH Industrial NV CNHI.

The Analyst

Morgan Stanley’s Courtney Yakavonis upgraded the stock to Overweight with a $12 price target.

The Thesis

The market doesn’t yet appreciate CNH Indsustrial’s margin opportunity, Yakavonis said.

Yakavonis said the company has underperformed sector peers by 19% year to date and said Morgan Stanley thinks the company’s narrative is moving toward margin improvement and structural earnings upside.

“We see early signs of greater cost discipline from new management,” Yakavonis wrote in a note, noting a $100 million cost savings program. Morgan Stanley will be looking for more evidence that at an upcoming analyst day, that Yakavonis said could be a positive catalyst for share price.

CNH’s first-year CEO Hubertus Mühlhäuser helped grow EBITDA at his former company by about 20% despite a sales decline and Yakavonis expects similar cost cutting success at CNH. The analyst cited two quarters of modest margin increases at CNH that have come despite softer sales. Morgan Stanley sees more of that to come.

The upgrade makes CNH Industrial Morgan Stanley’s top pick in the U.S. machinery sector.

Price Action

Investors agreed Monday, boosting CHN Industrial shares by 6.4% to $9.38.

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