CNH Industrial (NYSE: CNH) shares closed sharply higher on Wednesday, gaining 9.2% to $13.65, following an upgrade from Evercore ISI. The firm lifted its rating on the agricultural and construction equipment maker to Outperform from In-Line and raised its price target to $18 from $12.50. The new target implies a potential upside of 31.9% from Wednesday's close, signaling confidence in a robust recovery in the farm equipment cycle by 2027.
The upgrade comes amid a challenging period for the company, which has been grappling with weak demand in the agricultural sector. In the second quarter, CNH's industrial margin declined to 4.0%, down 1.6 percentage points, and industrial free cash flow fell to $150 million from $451 million in the prior year. The agriculture segment's margin dropped 2.9 points to 5.2%, reflecting the ongoing downturn.
Evercore ISI analyst David Raso highlighted several factors supporting the bullish outlook, including aging machinery in the United States and reduced inventory levels at dealerships. He projects that combine demand will rise 37% by 2027, while demand for high-horsepower tractors is expected to climb 27%. This anticipated recovery is central to the firm's revised price target, which is 37.4% higher than the broader analyst average of $13.10.
The stock's rally on Wednesday was accompanied by heavy trading volume of 53.8 million shares, 1.6 times the average of the previous five sessions. Over the five trading days ending September 2, CNH shares had already climbed 19.4%, reflecting growing optimism about a potential turnaround.
Despite the positive sentiment, recent financial performance remains weak. Industrial sales increased just 3% in the second quarter, while adjusted EPS guidance for 2026 remains at $0.41–$0.46. Evercore's 2027 EPS estimate of $0.82 is 89% higher than the 2026 midpoint, implying a significant earnings recovery. The company's CEO, Gerrit Marx, described the current market as "at the trough of the agriculture cycle."
Risks remain, including a 17% decline in North American large tractor demand and a 7% drop for combines in the second quarter. Tariffs, low crop prices, and financing pressures could further delay replacement purchases. Additionally, receivables more than 30 days overdue rose to 4.4% from 3.9%, and net income at Financial Services declined 18% to $71 million.
The upcoming week will provide fresh data on the agricultural sector, with the USDA scheduled to release its Crop Progress report on September 8 and its Crop Production report on September 11. These reports could influence crop income forecasts and, in turn, machinery order expectations.
Deere & Company (NYSE: DE) also gained 3.3% following the same upgrade, but CNH's larger advance reflects its higher potential for operating leverage from the bottom of the cycle. Investors will be watching closely to see if CNH can translate its cyclical outlook into improved margins and cash flow in the coming quarters.
