Are the good times over for the agriculture companies?
) is still expected to post double digit earnings growth in 2012 as
agriculture equipment demand stays strong. This Zacks #1 Rank
(Strong Buy) is also cheap, with a forward P/E of just 7.5 as
shares have weakened in the last few weeks.
AGCO is a Duluth, GA based maker of agriculture equipment. The
company sells in more than 140 countries through a team of
independent dealers and distributors.
The company has 4 core brands: Challenger, Fendt, Massey Ferguson
AGCO Hasn't Missed In 5 Years
AGCO reported first quarter results on May 1 and surprised on the
Zacks Consensus by 40%. Earnings per share were $1.21 compared to
the consensus of 86 cents.
It kept intact one of the most impressive earnings surprise streaks
I have seen out of any company. Not even Apple has beaten every
quarter for the past five years.
Sales rose 19.4%, excluding a 11.4% benefit of acquisitions and the
4.3% unfavorable impact of currency translation. Despite the
Eurozone crisis, sales growth was actually strongest in Western and
Eastern Europe where farming conditions are returning to normal
levels. Record farm income in North America also contributed to
strong sales there.
"Currently, inventories of grain remain at historically low levels
on a stocks-to-use basis," said Martin Richenhagen, President and
"Elevated soft commodity prices, resulting from these positive
supply/demand dynamics, are providing support for farm income and
our industry," he added.
Outlook For 2012 Remains Good
There was no gloom and doom about the farming sector in early May
from AGCO. Growth was expected to continue in Western and Eastern
Europe for the year.
In North and South America, market conditions were projected to
Jitters About 2012?
Despite the company's positive outlook in May, the analysts have
grown a bit jittery. In the last 30 days, 2 estimates out of 14
have been revised lower for 2012. That has pushed the Zacks
Consensus down by 3 cents to $5.53.
But that is still earnings growth of 23% as the company made just
$4.48 last year.
I've been talking about how undervalued the agriculture stocks are
and AGCO is one of them. Investors have fled the stock in the past
few weeks on jitters about the overall global economy.
This sell off has made AGCO even more undervalued.
In addition to a P/E under 10, the company has a price-to-book
ratio of 1.2. A P/B ratio under 3.0 usually indicates value.
It also has a stellar price-to-sales ratio of only 0.4. A P/S ratio
under 1.0 can mean a company is undervalued.
Other benefits to shareholders appear to be in the works.
While the company doesn't pay a dividend currently, AGCO told the
Financial Times in early June that it expects to pay a dividend at
some point in 2012. It would be the first dividend in 22 years.
Stay tuned for further announcements on that.
AGCO is scheduled to report second quarter results on July 26. This
may be the quarter where we'll really find out if this growth can
be sustained in 2012.
Tracey Ryniec is the Value Stock Strategist for
. She is also the Editor of the Turnaround Trader and Insider
Trader services. You can follow her on twitter at
AGCO CORP (AGCO): Free Stock Analysis Report
To read this article on Zacks.com click here.