CNH

CNH Industrial ($CNH): Warren Buffett's Son Makes $100K Contrarian Bet...Value Found at Agricultural Equipment Bottom?

11/13/2025 17:06

While CNH Industrial ($CNH) has struggled with a decline of over 30% this year, news of contrarian buying by Howard Buffett, son of Warren Buffett, has captured investors' attention with his approximately $100,000 purchase in November. CNH Industrial is a global agricultural machinery giant manufacturing tractors and farm equipment under brands like Case IH and New Holland, with a market cap of $12.9 billion. Howard Buffett purchased a total of 10,100 shares over November 11-12, with average purchase prices of $9.68-10.29 per share. This timing, when the stock was trading near its yearly lows, suggests not just portfolio rebalancing but a conviction-driven investment. This contrasts sharply with March and May sales by executives including the CEO. Buffett's purchase becomes more significant given the agricultural equipment industry's severe downturn. CNH's Q3 results showed North American agriculture equipment sales plummeting 28.7% year-over-year, with EPS of $0.08 missing consensus of $0.13 by 38%. This reflects a combination of declining U.S. farm incomes, high interest rates, and excess inventory. However, multiple brokerages view 2025 as the industry 'bottom.' Citi expects "U.S. core machinery markets to bottom in 2025," forecasting agricultural equipment demand to hit its lowest point by end-2025 before recovering in 2026. Dealer inventory reduction and replacement demand are expected to drive the recovery. CNH faces significant structural challenges. Its debt-to-equity ratio of 350% far exceeds industry averages, while operating margins remain low at 3.35%. The company has responded with a $550 million cost reduction plan and announced $5 billion in U.S. investments over five years. However, it's also closing its Burlington, Iowa plant, affecting 200 jobs. Trade policy remains a key variable. Trump administration's tariffs on China have pressured agricultural equipment makers with rising costs. However, the recent 90-day tariff pause from a US-China trade deal provides short-term relief. Valuation appears attractive at current levels. The stock trades at 12.2x forward P/E, discounted to historical averages, while P/B of 1.67x appears reasonable. Given expected EPS growth, the stock appears undervalued. Positive signals investors should watch include 16% growth in EMEA agriculture sales and solid construction equipment performance. Financial services revenue also grew 3.8%, demonstrating diversified revenue stream benefits. Warning signs include persistent North American agriculture sales weakness, interest rate risk from high leverage, and potential trade dispute escalation. Particularly, if tariff impacts intensify in H2 2025, margin pressure could worsen. The most likely scenario sees continued weakness through H1 2025, with gradual recovery signals emerging in H2. 2026 should see visible improvement from farm investment recovery, replacement demand, and cost reduction benefits. However, recovery pace depends on macroeconomic conditions and trade policies. Risk scenarios include additional commodity price declines, expanded tariff impacts, and construction demand drops from recession, potentially delaying recovery until 2027. Howard Buffett's purchase reflects a long-term value investing philosophy. Despite near-term challenges, he likely sees value in CNH's global market position, diversified business structure, and leverage to industry recovery. While current levels may offer attractive opportunities for patient long-term investors, the high volatility and debt risks require careful consideration.