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CNH Expands Brazilian Ties

Zacks Equity Research

CNH Global N.V. (CNH) recently announced its intent to invest in a R$600 million construction equipment plant in Minas Gerais, Brazil. A Memorandum of Understanding pertaining to the investment has been signed with the state of Minas Gerais at Turin, Italy, to build the unit at Montes Claros, a city in northern Minas Gerais.

This plant would create around 700 direct production and 2,000 supporting jobs for producing supply parts and components. The site is expected to be of around 2,000,000 square meters in total area with 700,000 square meters dedicated to production alone and is scheduled to be operational in 2014.

CNH’s parent firm, Fiat Industrial, started its first factory in Contagem, Brazil, in 1970. Needless to say, the present venture shall further solidify this long-lasting relationship with the Brazilian state, not to mention the market share proliferation in the seventh largest economy of the world.

CNH has remained desirous of making proactive advances towards achieving optimum global expansion over time, primarily eyeing the emerging economies. Not long ago, the company announced the construction of a plant with an initial investment cost of $90 million at Harbin, in the Heilongjiang Province of northeast China.

It is indeed wise for CNH to remain wary of its competitors in the industry as they are also proactive rather than dormant when it comes to implementing market expansion strategies and constructive measures. Finning International Inc. recently announced its decision to acquire the distribution and support businesses from Caterpillar for nearly $465 million. Other ominous threats in the industry include Kubota Corp. (KUB) and Ag Growth International Inc.

We continue to maintain a Neutral recommendation on CNH. In the short run, our view is supported by a Zacks #3 Rank on the stock which translates into a short-term rating of Hold.

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