Goldman Sachs Downgrades CNH to Neutral; AI Drives Strong Capital Goods Orders
AI summary card
Goldman Sachs Downgrades CNH to Neutral; AI Drives Strong Capital Goods Orders
Q1 orders grew 16% on average, but sales conversion slowed; CNH downgraded due to weak agricultural demand, while price targets adjusted for several other stocks.
- Q1 orders beat expectations by 77%, with average growth of 16%
- AI-related capex accounts for over 40%, significantly driving demand
- CNH downgraded to Neutral, target price lowered to $10.5
- Signify awaits catalyst from Capital Markets Day on June 23
- Approximately 50% of companies missed margin expectations, revealing cost pressures
- Americas and China/Asia demand outperformed Europe
Report interpretation
Overview
This report reviews the Q1 2026 performance of the European Capital Goods sector, covering approximately 76% of held positions. The core conclusion is that demand is significantly strong, primarily driven by AI data center-related activities, though sales conversion cycles are lengthening and margins face cost pressures. The report downgrades CNH Industrial to Neutral and updates earnings forecasts and price targets for individual stocks including Assa Abloy, Atlas Copco, Konecranes, Signify, and SKF. Overall, the Americas and China/Asia markets outperformed Europe, with divergence emerging within the industry.
Core views
Regarding demand and orders, the Q1 earnings season shows significantly strong demand despite macro risks appearing at the end of the quarter. The AI-related ecosystem (data centers, semiconductors, utilities) accounts for over 40% of the capex tracker, far higher than 25% three years ago, directly driving an average 16% organic order growth in capital goods. While 77% of covered companies beat order expectations, the order-to-sales conversion cycle has lengthened, with approximately 69% of companies missing sales targets. Regarding margins and costs, about 50% of companies missed margin expectations, mainly due to renewed headwinds from commodities and input costs. Although companies were hesitant to raise prices in 4Q25, more companies (such as Assa Abloy, Legrand, ABB) are now increasing their 2026 pricing guidance. Regarding individual stock views, CNH Industrial was downgraded to Neutral with a target price cut to $10.5 due to persistently weak North American agricultural demand, high fertilizer costs, and tariff headwinds. Signify maintains a Buy rating despite lowered earnings forecasts, based on its high free cash flow yield and upcoming Capital Markets Day (CMD). SKF maintains a Sell rating due to overproduction prior to the automotive spin-off and weak cash conversion. Atlas Copco and Konecranes received positive evaluations due to increased semiconductor capex and market share wins in port solutions, respectively, though both face challenges from lengthening conversion cycles.
Analysis framework
The report employs a multi-industry toolkit for analysis, including thermometers, screeners, and a capex tracker. It uses a Heatmap to track sequential earnings acceleration/deceleration across different end markets, visualizing trends by converting organic order growth or sales growth. In terms of valuation, it primarily adopts an industry-relative EV/IC vs. ROIC/WACC framework, combining SOTP (Sum-of-the-Parts) for target price calculations for certain companies (e.g., CNH, SKF). The report also compares Goldman Sachs forecasts with Visible Alpha consensus data to assess expectation gaps.
Methodology notes
Heatmap tracking earnings acceleration/deceleration
The report uses a heatmap to track sequential changes in earnings across various end markets, visualizing trends through order or sales growth rates to help investors quickly identify which regions or sectors are improving or deteriorating.
EV/IC vs ROIC/WACC Framework
Determines valuation multiples by comparing the Enterprise Value to Invested Capital ratio (EV/IC) with the relationship between Return on Invested Capital and Weighted Average Cost of Capital (ROIC/WACC), suitable for relative valuation in capital-intensive industries.
SOTP Sum-of-the-Parts
Values companies with multiple business segments (e.g., CNH's Agriculture and Construction Equipment) by valuing each segment separately and summing them up to more accurately reflect the value contribution of each business line.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- CNH Industrial (CNH)Downgraded to Neutral due to weak agricultural demand and tariff impact
- Strengths
- High equipment age, potential subsidy support
- Weaknesses
- Low North American agricultural demand, high fertilizer costs, 100bps tariff headwind
- Comparison
- Valuation in line with industry peers, but earnings forecasts below consensus
- Risks
- Rising fertilizer costs, inability to pass on tariffs, currency fluctuations
- Signify (LIGHT.AS)Maintain Buy, awaiting Capital Markets Day catalyst
- Strengths
- One of the cheapest stocks in coverage, high FCF yield, high cash return
- Weaknesses
- Slowdown in consumer and professional businesses, macro uncertainty
- Comparison
- Valuation based on EV/IC framework and M&A valuation
- Risks
- Weak construction volumes, pricing deterioration, US tariff risk
- SKF (SKFb.ST)Maintain Sell, weak cash conversion
- Strengths
- 2026 EBIT temporarily raised due to overproduction
- Weaknesses
- Overproduction prior to automotive spin-off, weak cash conversion, high restructuring costs
- Comparison
- Valuation based on EV/IC framework and SOTP components
- Risks
- Spin-off costs higher than expected, synergies lower than expected
- Konecranes (KCRA.HE)Maintain Buy, market share wins in Port Solutions
- Strengths
- Equipment division orders beat expectations, solid industrial capex
- Weaknesses
- Lengthening order-to-sales conversion cycle, macro and tariff uncertainty
- Comparison
- Target price unchanged, valuation based on EV/IC framework
- Risks
- Tariff reversal, pricing pressure, execution risk
- Atlas Copco (ATCOa.ST)Maintain Neutral, semiconductor capex raised
- Strengths
- 2026 orders raised by 4%, reflecting semiconductor capex upgrades
- Weaknesses
- Order-to-sales conversion weaker than expected, lead times lengthening
- Comparison
- Earnings forecasts slightly below consensus (single digit)
- Risks
- Revision of global growth expectations, semiconductor cycle changes, market share of Chinese competitors
- Assa Abloy (ASSAb.ST)Maintain Neutral, lack of near-term catalysts
- Strengths
- Valuation at a slight discount to sector
- Weaknesses
- Back-end loaded European construction recovery, lack of clear catalysts in 2026
- Comparison
- Earnings forecasts 2% below consensus
- Risks
- Margin targets missed, construction outlook weaker than expected, interest rate changes
Key data
- Q1 Average Order Growth16%Organic order growth in the Capital Goods sector
- Percentage of Orders Beating Expectations77%Proportion of covered companies with positive order surprises
- Percentage of Sales Missing Targets69%Order-to-sales conversion lengthening
- Percentage of Margins Missing Targets50%Impacted by costs and input prices
- AI-Related Capex Share>40%Share of capex tracker, was <25% three years ago
- CNH Target Price$10.5Downgraded from $12.0, implies 3% downside
- CNH EBIT Forecast Adjustment-7%/-19%2026/27E Group EBIT estimates lowered
Impact & implications
The report argues that capex related to AI data centers has become a key growth engine for the capital goods sector, altering traditional cycle-driven logic. However, macro volatility, tariff headwinds (particularly changes to the metal Section 232 methodology), and a high-interest-rate environment are delaying recovery in certain areas (such as European construction and North American agriculture). For investors, it is crucial to monitor changes in the efficiency of order-to-sales conversion and whether companies can successfully pass on cost pressures. The downgrade of CNH reflects a cautious stance on the agricultural cycle recovery, while the Buy rating on Signify is based on its attractive valuation and expected strategic restructuring.
Risks
- Persistently weak North American agricultural demand and high fertilizer costs
- Tariff headwinds and risk of inability to pass on costs
- Delayed European construction recovery and high interest rate environment
- Lengthening order-to-sales conversion cycle
- Adverse currency fluctuations
- Spin-off restructuring costs higher than expected (SKF)
- Strategic portfolio review results falling short of expectations (Signify)
What to watch
- Signify Capital Markets Day (CMD) on June 23 and new medium-term targets
- Pace of rate cuts by the Fed and global central banks
- Farmer subsidy announcements and E15 ruling
- Signs of recovery in European construction volumes
- Changes in the semiconductor capex cycle
- Subsequent impact of tariff policies and ability to pass them on