On Mar 21, 2013, we downgraded our recommendation on designer
and manufacturer of self-propelled center pivot and lateral move
) from Outperform to Neutral, driven by recovery in the U.S.
construction sector, increase in backlog, and robust demand for
irrigation systems in the domestic markets driven by drought
However, non-recurrence of drought conditions in the future,
which can affect the company's ability to maintain similar
year-over-year growth, and weak international sales in the
quarter remain concerns.
Why the Downgrade?
Demand for irrigation systems in the domestic markets will
remain high, driven by high crop prices and drought conditions,
leading to prolonged spending in irrigation equipment through
2013. According to the U.S. Department of Agriculture, U.S. farm
income will be a record $128.2 billion in 2013, up 14%.
This will be driven by high market prices and crop insurance
payments that will offset losses from the drought. Prices for
corn, wheat and soybeans are projected to remain historically
high and above the pre-2007 levels.
U.S. construction is finally stabilizing and is on the road to
a much-awaited recovery. The American Institute of Architects
projects a 5% increase in spending in 2013 for non-residential
construction project and 7.2% for 2014. This in addition to the
passage of the new Highway Bill through 2014 will benefit
Lindsay's infrastructural business.
Backlog increased 61% year over year to $85.1 million as of
Nov 30, 2012, and 49% sequentially from Aug 31, 2012, led by U.S.
irrigation order strength. The increase in backlog will drive
strong results in the next quarter.
For fiscal 2012, approximately 36% of Lindsay's consolidated
revenues were generated from international sales. International
sales declined 6% in the first quarter due to difficult
comparisons and the absence of a meaningful project in the Middle
East in the prior-year period.
The ongoing instability in the U.S. and international markets
along with the global recessionary concerns and the slow economic
recovery could adversely affect the ability of farmers and
government agencies to buy and finance irrigation equipment and
highway infrastructure equipment.
The drought in the U.S was a significant factor in driving
sales in the first quarter. Even though the company expects 2013
results to benefit from prevailing weather condition in the U.S,
this is not expected to contribute to similar year-over-year
growth in the future.
Other Stocks to Consider
Lindsay Corporation currently retains a Zacks Rank #3 (Hold).
Other stocks in the same industry with favorable Zacks ranks are
Alamo Group, Inc.
Briggs & Stratton Corporation
CNH Global NV
), which carry a Zacks Rank #2 (Buy).
ALAMO GROUP INC (ALG): Free Stock Analysis
BRIGGS & STRATT (BGG): Free Stock Analysis
CNH GLOBAL NV (CNH): Free Stock Analysis
LINDSAY CORP (LNN): Free Stock Analysis
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