We are downgrading our recommendation on AGCO from Neutral to
Underperform, with a target price of $51. AGCO's third-quarter 2013
earnings increased 32% year over year to $1.27 per share. Total
revenue rose 8% year over year to $2.5 billion. However, earnings
will be hurt by the absence of current depreciation tax benefits in
the U.S. and potential FINAME borrowing cost increases in Brazil.
Despite improved results, AGCO reiterated its full-year 2013
earnings per share guidance of $6.00. In addition, margins will be
affected by the rise in engineering expenses. Moreover, strong
growth in South America and a modest performance in North America
are expected to be offset by a moderate decline in Western Europe.
Established in 1990, AGCO Corporation is a leading manufacturer
and distributor of agricultural equipment and related replacement
parts. The company offers a full product line of farm equipment
through a wide network of dealers and distributors in more than 140
countries across the world. AGCO Corporation's product line is
categorized under five groups: tractors, replacement parts,
combines, application equipment/sprayers, and other machinery.
The tractor business sells compact tractors (below 40
horsepower) typically used on small farms and in specialty
agricultural industries such as dairies, landscaping, and
residential areas. Moreover, AGCO Corporation provides utility
tractors (40-100 horsepower) and high horsepower tractors (100-500
horsepower) used in medium-scale and large-scale farms. The
replacement parts business supplies replacement parts for products
sold under each of its brand names. The unit sells combines under
the AGCO Allis, Gleaner, Massey Ferguson, Fendt, Valtra, and
Challenger brand names. Under the application equipment/sprayers
group, AGCO provides self-propelled three-and-four-wheeled vehicles
and related equipment for use in the application of liquid and dry
fertilizers and crop protection chemicals. The company also
manufactures other related equipment, including vehicles used for
waste application. Finally, within the machinery group, the company
sells hay tools and forage equipment, primarily under the Hesston,
Massey Ferguson, Challenger, Fendt, and AGCO Allis brand names.
AGCO Corp. also distributes an array of implements, planters, and
other equipment for its product lines.
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