AGCO Remains at Neutral
AGCO CORP (AGCO): Free Stock Analysis Report
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On Nov 8, we maintained our Neutral recommendation on
). AGCO will benefit from its international expansion plans,
healthy farm income and increased demand for grain storage.
However, peak demand conditions, which were benefiting North
America results of this leading manufacturer and distributor of
agricultural equipment, may be unsustainable going forward.
Furthermore, margin headwinds remain in the form of increased
engineering expenditures to meet Tier 4 emission requirements.
AGCO's third-quarter 2013 earnings increased 32% to $1.27 a share
and revenues increased 8% to $2.5 billion, mainly driven by
higher sales in South America and in the Asia Pacific region. For
2013, AGCO projects earnings per share of $6.00 and revenues in
the range of $10.8 to $11 billion. Strong growth in South America
and modest growth in North America is expected to be offset by
modest declines in Western Europe. Global industry demand is
expected to be relatively flat in 2013 compared to 2012.
The company remains committed to its plans of expanding in the
Commonwealth of Independent States (CIS), China, and Africa,
given the considerable growth prospects in these markets where
immense areas of farmland are currently under cultivation with
less efficient machinery. In September, AGCO entered into a 50-50
joint venture with Russian Machines to manufacture and distribute
agricultural equipment and replacement parts in Russia. This is a
significant step in AGCO's growth strategy for the Russian
The U.S. Department of Agriculture (USDA) expects a record net
farm income of $120.6 billion in 2013, a 6% year-over-year rise
triggered by record crop production. This will be the second
highest inflation-adjusted amount since 1973. This will support
increased farm incomes, which in turn compels farmers to
continually upgrade and expand their fleets and sustain stable
GSI sales increased about 9% in the third quarter and the U.S.
grain storage sales showed improvement in the third quarter
compared to last year's drought-impacted results and contributed
to most of GSI's third quarter increase. For 2013, GSI sales is
expected to be up between 5% and 7%. The large harvest will
require farmers to add storage capacity. Longer term, the global
trends of population growth and changing diets will create demand
for additional grain storage and protein production capacity.
On the flipside, AGCO's North American operating performance has
outperformed year to date. However, the peak demand conditions
that benefited North America results may be unsustainable going
AGCO has also delivered strong performance in South America and
orders were also up year over year. The weaker Brazilian real and
FINAME financing with low rates have helped Brazilian farmers.
The FINAME financing programs have not yet been finalized for
2014. Increase in rates may affect equipment demand. Furthermore,
margins will be under pressure as engineering expenditures are
expected to increase as the company strives to meet Tier 4
Other Stocks to Consider
AGCO retains a short-term Zacks Rank #3 (Hold). Other machinery
makers with favorable Zacks ranks are
) with a Zacks Rank #1 (Strong Buy),
DXP Enterprises, Inc.
H&E Equipment Services Inc.
), which retain a Zacks Rank #2 (Buy).