Rising R&D Costs And Autonomous Threats Will Erode Margins

Key Takeaways

• Shift to sustainable agriculture and high input costs will pressure margins, requiring heavy investment and challenging earnings stability.
  
• Lagging in autonomous and precision tech adoption could weaken CNH's competitive position and erode long-term revenue streams.
  
• Technology investments, regional market gains, cost optimization, and renewed India strategy are set to drive margin improvement, revenue diversification, and long-term earnings growth.

Catalysts

An equipment and services company, engages in the design, production, marketing, sale, and financing of agricultural and construction equipment in North America, Europe, the Middle East, Africa, South America, and the Asia Pacific.

• The accelerating move toward regenerative and sustainable agriculture is forcing large, expensive shifts away from CNH's core of traditional diesel machinery; this will require outsize R&D investment and costly fleet overhauls for electrification and alternative powertrains, leading to sustained margin compression and a significant drag on earnings growth over the next decade.
  
• Rapid advances in autonomous technologies and agricultural robotics threaten to erode CNH's customer base if start-ups or better-capitalized rivals deploy smarter, lower-cost equipment solutions faster than CNH can update its own product stack, causing a structural, long-term decline in both revenues and market relevance.
  
• Global supply chains are facing persistent disruption as geopolitical trade tensions increase, with new tariffs, regional retaliation, and regulatory uncertainty already impacting steel and semiconductor costs; as a result, CNH is likely to face structurally higher input costs, unpredictable production outlays, and increased earnings volatility in the coming years.
  
• CNH's high exposure to the cyclical nature of agriculture and construction equipment markets, combined with its dependency on North America for high-margin sales, means that any prolonged downturn in NA farm capital spending or further decline in crop prices could keep revenue and net margins elevated only temporarily before resuming a secular downtrend as replacement demand weakens globally.
  
• If CNH falls behind peers in integrating and monetizing precision agriculture technology and recurring digital services-while already trailing in after-sales and digital penetration-future net margins and long-term earnings quality will be at risk, as recurring, higher-margin revenue streams stagnate and the company's competitive positioning weakens across core markets.

CNH Industrial Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on CNH Industrial compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming CNH Industrial's revenue will decrease by 0.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.6% today to 6.0% in 3 years time.
• The bearish analysts expect earnings to reach $1.1 billion (and earnings per share of $0.88) by about August 2028, up from $823.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 18.9x on those 2028 earnings, which is the same as it is today today. This future PE is lower than the current PE for the US Machinery industry at 23.3x.
• Analysts expect the number of shares outstanding to decline by 0.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.28%, as per the Simply Wall St company report.

CNH Industrial Future Earnings Per Share Growth

Risks

• CNH Industrial is aggressively investing in technology partnerships, such as its recent Starlink agreement for seamless connectivity and ongoing integration of precision agriculture tech, which could accelerate revenue growth and improve margins if adoption continues in developed and emerging markets.
  
• Early signs of demand stabilization and even green shoots in key regions like Eastern Europe, Africa, and the Middle East-combined with high market share in these territories-suggest the potential for stronger-than-expected sales and diversified revenue streams.
  
• Ongoing and expanding initiatives in cost reduction, manufacturing quality improvements, and operational excellence, especially through strategic sourcing and automation, are expected to deliver sustained gains in net margins and long-term earnings growth.
  
• The company highlights a renewed strategic focus and investments in India as both a growth market and an engineering/export hub, which could lead to above-industry growth rates and long-term revenue diversification.
  
• Persistent positive pricing actions, coupled with the launch of new, higher-value and tech-enabled equipment, point to the potential for improved overall pricing power and recurring revenue from digital services, which would support stronger earnings and margin expansion over time.

Valuation

• The assumed bearish price target for CNH Industrial is $11.5, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of CNH Industrial's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $21.0, and the most bearish reporting a price target of just $11.5.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $18.4 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 18.9x, assuming you use a discount rate of 13.3%.
  
• Given the current share price of $12.43, the bearish analyst price target of $11.5 is 8.1% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.