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Ag Demand Is Normalizing, but We Remain Positive on Long-Term Outlook for CNH
CNH Industrial provides customers with an extensive portfolio of off-highway products. We believe it will continue to be a top-two player in the agriculture industry. For generations, the company’s agriculture equipment has garnered intense brand loyalty among farmers. Customers value CNH’s high-quality and strong-performing products, in addition to its robust dealer network. In developed markets, CNH helps customers reduce the total cost of ownership through improved fuel efficiency, limited machine downtime, and consistent parts availability.
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Ag Demand Is Normalizing, but We Remain Positive on Long-Term Outlook for CNH
CNH Industrial provides customers with an extensive portfolio of off-highway products. We believe it will continue to be a top-two player in the agriculture industry. For generations, the company’s agriculture equipment has garnered intense brand loyalty among farmers. Customers value CNH’s high-quality and strong-performing products, in addition to its robust dealer network. In developed markets, CNH helps customers reduce the total cost of ownership through improved fuel efficiency, limited machine downtime, and consistent parts availability.
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We Believe Rockwell Will Benefit From Secular Growth Drivers
We view Rockwell as the highest quality automation player on the west side of the Atlantic based on quality, breadth of offerings, and shrewd strategic partnerships. Today, it is one of the best-in-breed competitors seeking to gain a stronger foothold where technology meets traditional manufacturing, which Rockwell deems the Connected Enterprise.
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Sampo Balances Underwriting Quality With Growth; We Think the Former Takes Precedence
Sampo is an efficiently run Nordics-based personal lines insurer that tends to focus on improving its underwriting quality year on year by holding on to customers for longer and therefore paying less in acquisition costs. The digitalization of its operations and extraction of expenses, scale, and negotiation power with its partners have also helped. Sampo has a long-term track record of increasing its prices ahead of the prevailing rate of inflation. The business tends to invest a little under EUR 100 million a year to achieve these goals. We think the savings the company has generated from these investments have more than covered their costs and more than covered the existing returns the business has generated. In other words, we believe these investments have been value-accretive.
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Despite Near-Term Demand Slump, Deere Is Well-Positioned to Benefit Long Term From Precision Ag
Deere offers customers an extensive portfolio of agriculture and construction equipment. We think it will continue to be the leader in the agriculture industry and one of the top players in construction. For over a century, the company has been the pre-eminent manufacturer of mission-critical agricultural equipment, which has led to its leading brand recognition. Deere’s strong brand is underpinned by its high-quality, extremely durable, and efficient products. Customers in developed markets also value Deere’s ability to reduce their total cost of ownership through productivity and other efficiency enhancements.
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Qiagen Still Pushing for Higher Growth Than Its End Markets
Qiagen aims to help scientists and caregivers use biological samples to identify and solve problems related to DNA, RNA, and proteins, which should remain in high demand even after the pandemic, albeit probably at a reset rate following that unique event. Qiagen's roots are in products that help scientists prepare biological samples for various experiments, and sample preparation products account for nearly 35% of sales. Qiagen remains a key leader in this niche, and we expect Qiagen to continue to invest to maintain or improve in that business in the long run.
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Car Group Expected to Conquer Brazil
We expect the medium and long-term strategic focus for Car Group to revolve around functional and geographic expansion.
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Despite Its Relatively Small Size, Integral Is Uniquely Positioned to Benefit From Industry Trends
Integral’s strategy centers on capitalizing on the growing demand for diagnostic imaging. Volume growth is driven by population growth, ageing demographics, higher incidence of diseases, and wider adoption of preventative diagnostics. These drivers are often greater in regional areas which Integral focuses on.
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We Expect Most of Caterpillar's End Markets to Remain Stable Through 2024
We believe Caterpillar will continue to be the leader in the global heavy machinery market with an extensive portfolio of construction, mining, energy, and transportation products. For nearly a century, the company has been a trusted manufacturer of mission-critical heavy machinery, which has led to its position as one of the world’s most valuable brands. High-quality, extremely reliable, and efficient products underpin the strong brand. Customers also value Caterpillar’s ability to lower the total cost of ownership.
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We See Allison Remaining the Fully Automatic Transmission Leader for Trucks
We believe Allison will continue to be the top supplier of fully automatic truck transmissions, despite increasing regulation of emissions by government authorities. The company dominates the medium-duty market, commanding approximately 80% share in some verticals (school buses, Class 6-7 trucks, and Class 8 straight trucks). Allison's strong brand is underpinned by its high-performing and extremely durable transmissions. This has led to the company benefiting from pricing power.
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United Rentals Is the Market Leader in a Consolidating Sector
We think United Rentals will continue to be the top player in the North American equipment rental industry with 15% share. As the industry leader, the company provides customers with better equipment availability and reliability than smaller players. However, many of the equipment brands found in United Rentals’ product catalog can also be found with competitors, such as Sunbelt Rentals (owned by Ashtead), Herc, and thousands of other rental companies across North America.
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Investments Should Lead to Long-Term Sales Growth for Narrow-Moat Porsche
Because of its intangible assets, including brand strength and intellectual property, Porsche has a narrow economic moat rating. The brand is synonymous with motorsports and highly engineered, fun to drive, sports cars. Brand strength has enabled a premium to luxury price range across Porsche's product portfolio, while intellectual property supports the brand image from racing-inspired engineering and well-executed product. Porsche is one of only a handful of automakers to which we assign an economic moat.
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Sluggish China and North America Sales Weaken 2024 Numbers but Favorable Long-Term Outlook Remains
Carl Zeiss Meditec is one of the largest medical technology companies in the world and it operates in two segments: ophthalmic devices, or OPT, and microsurgery, or MCS.
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Gucci Recovery Is Key to Kering's Investment Thesis
Kering Group’s portfolio of luxury brands provides it with a narrow moat and a good platform for future growth. The flagship Gucci brand accounts for over 50% of revenue and almost 70% of the company's earnings, but brands like Saint Laurent (over EUR 3 billion revenue), Bottega Veneta, and Balenciaga are also set to support growth in future.
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Lululemon’s Immense Popularity Is an Advantage, but Competition in North America Is Heating Up
We think Lululemon has a solid plan to expand its product assortment and geographic reach while building its core business. While there are many firms looking to compete in its categories, we believe Lululemon benefits from the athleisure fashion trend and will continue to achieve premium pricing due to the brand’s popularity and the styling and quality of its products. Our narrow moat rating is based on the company's intangible brand asset.
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Near-Term Challenges for LKQ Do Not Change Our Long-Term Thesis
LKQ is the top alternative vehicle-parts provider to repair shops in North America and Europe. We believe the company benefits from scale-driven cost advantages in its business. Customers value LKQ’s consistent parts availability across a wide range of products and quick delivery. LKQ helps customers complete repairs faster, improving productivity. We think the company’s strong distribution network will support its ability to keep order fulfillment rates high in both aftermarket and salvage products.
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Super Retail's Narrow Moat Sourced From Supercheap's Cost Advantage
Super Retail Group operates in Australia and New Zealand, selling automotive parts and accessories, sporting goods, and outdoor leisure equipment. The group is the market leader in all three segments in Australia, with about 20%-30% market share in auto parts, camping equipment, and sporting goods retailing. However, we believe formidable competition will constrain operating margins as the firm competes on price to maintain market share.
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Product and Channel Transitions to Drive Stabilizing Profit for Hengan
Hengan International operates in the tissue, sanitary napkin, and diaper markets in China and is one of the leading brands in tissue and sanitary napkins. Being one of the early movers in personal-care products, it has developed an extensive offline distribution network in China. It has also penetrated lower-tier cities, which contributed close to 80% of its sales in 2021. With its focus on lower-tier cities, the majority of the firm's products sit in the mass market below-premium segments.
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Best Buy Set For Third Straight Year of Sales Declines, but Industry Poised for Modest Rebound
We believe Best Buy is taking adequate steps to shore up its competitive position in an intensely competitive consumer electronics space. Moving forward, the firm plans to prioritize its digital platforms, continue to reimagine its in-store experience, and invest in incremental revenue streams.
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We See Near-Term Challenges Ahead for Snap-on but Remain Positive on Long-Term Prospects
Snap-on provides premium tools to vehicle repair shops and industrial customers. We believe it will continue to be the top player in the tool industry. The company benefits from a strong brand reputation among repair technicians. Customers value Snap-on’s high-quality and strong-performing products, in addition to its high-touch mobile van network. Snap-on’s tools and diagnostic products help customers complete repairs faster, improving productivity. We think customers will continue to pay up for Snap-on’s tool durability, convenience, and flexible financing options.
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PG&E Making Progress To De-Risk Operations, Boost Investment
PG&E emerged from bankruptcy in July 2020 after 17 months of negotiations with 2017-18 Northern California fire victims, insurance companies, politicians, lawyers, and bondholders. Shareholders lost some $30 billion in settlements, fines, and costs but retained control. Bondholders were mostly made whole.