Deutsche Bank Initiates CNH Industrial With Sell Rating

Deutsche Bank has started coverage of CNH Industrial NV (NYSE: CNHI) with a Sell rating and price target of $6.38, as it sees 24 percent downside to 2017 consensus EPS estimate.

The price target of $6.38 represents a potential downside of 13.55 percent over Tuesday's close of $7.38.

The brokerage expects ag. equipment segment revenue and profit down 4 percent and 14 percent year-over-year, respectively, in 2017. This, coupled with an expected 15 percent decline in FinCo income, is likely responsible for the 24 percent gap between Deutsche Bank's estimate of $0.30 and consensus EPS forecasts of $0.39.

CNH management recently noted, "Ag Equipment segment sales should stabilize in 2017 as volumes recouple with end user demand after two years of underproduction."

Related Link: April 2016: BoA Upgrades CNH Industrial To Buy For "First Time Ever"

"We acknowledge evidence of progress within combines, as dealer inventory has fallen >60 percent vs. 2013 peak levels — but HHP tractor inventory has hardly come down vs. peak. We also see little promise of recovery in international markets, given that crop prices are down materially Y/Y," analyst Nicole DeBlase wrote in a note.

DeBlase noted that the company's expected benefit from commercial vehicle margins, interest rates and taxes would not occur until 2018.
CNH is likely to benefit from lower interest and taxes, yielding $0.12 total EPS accretion by 2020. But savings will be gradual, and will not start until 2018.

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