We reiterate our Neutral recommendation on
), the leading maker of self-propelled center pivot and lateral
move irrigation systems. Though the new Highway Bill will provide
funds through 2014, leading to a ramp up in the infrastructural
business, any delay in the highly capital intensive highway
projects will negatively impact pricing.
Lindsay's fourth-quarter fiscal 2012 earnings of 68 cents per
share missed the Zacks Consensus Estimate of 76 cents. Total
revenues improved 10% year over year to $127.8 million, but
missed the Zacks Consensus Estimate of $129 million.
Demand for irrigation systems in the domestic as well as
international markets will remain high as drought remains a
hindrance to corn yield. As such, prices are expected to remain
high moving ahead. As a result, high crop prices and current
drought conditions will lead to sustained spending in irrigation
equipment through 2013, benefiting Lindsay in the process.
Corn prices jumped 28% and soybean prices moved up 33% on a year
over year basis in the fourth quarter, driven by drought. The
United States Department of Agriculture increased its forecast of
net farm income to a record $122.2 billion in 2012 and about 65%
higher than a 10 year average, reflecting higher crop prices and
crop insurance income.
The Architecture Billing Index of the American Institute of
Architects indicates that non-residential construction activity
for nine to twelve months rose 1.4 points to 51.6 in September,
the fastest increase since late 2010. Any reading above 50
denotes an increase in demand for architect's services.
Moreover, the new projects inquiry index was 57.3 in September,
slightly up from 57.2 in August. In addition, the new Highway
Bill will provide the funds through 2014, benefiting the
infrastructural business of Lindsay.
However, one of the chief concerns for Lindsay is the price
volatility for certain commodities like steel, which is used in
manufacturing products. Steel comprises a third of Lindsay's cost
of goods sold and, therefore, has a significant impact on
Moreover, the highway projects are generally capital intensive
and take considerable amount of time to start. Delay in highway
projects is expected to endanger Quickchange Moveable Barrier
(QMB) sales, leading to negligible infrastructure profitability.
Lindsay, which belongs to the farm and construction machinery
industry, retains a Zacks #2 Rank (Buy).
Deere & Company
) both retain a Zacks #3 Rank (Hold) in the same industry.
AGCO CORP (AGCO): Free Stock Analysis Report
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LINDSAY CORP (LNN): Free Stock Analysis
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