AGCO Corp Stock Rallies 29% YTD: What's Working in Favor?

Shares of AGCO Corporation AGCO have rallied 28.8% year to date, fueled by its forecast-topping earnings in first-quarter 2019 and an encouraging outlook for the ongoing year. The company is likely to benefit from recovery in global farm equipment demand, investment in products, technology and capital-allocation plan.

AGCO, a Zacks Rank #2 (Buy) stock, has a market cap of roughly $5.40 billion and the average volume of shares traded in the last three months was around 566K. The company has an expected long-term earnings per share growth rate of 13.4%, higher than the industry’s 8.7%.

The company outpaced the Zacks Consensus Estimate in all of the trailing four quarters, the average positive earnings surprise being 31.01%. The stock’s 28.8% year-to-date rise has outperformed the  industry’s growth of 2.0%.

Let’s delve deeper and analyze the reasons behind the company’s impressive price performance and find out if there is room for further appreciation:

Strong Earnings Performance in Q1: AGCO reported first-quarter adjusted earnings per share of 86 cents, up a whopping 145.7% year over year. The reported figure also surpassed the Zacks Consensus Estimate of 42 cents by a wide margin.
Upbeat Outlook:  Following an extended period of decline, AGCO anticipates global farm equipment demand to improve modestly in the current year. Thus, for the year, the company expects net sales to rise approximately 2% from the 2018 levels to $9.5 billion on higher sales volumes and positive pricing. The company now anticipates 2019 adjusted earnings per share of $4.90, up from the previous expectation of $4.60.

Gross and operating margins will be higher compared with 2018 levels, driven by higher sales levels, positive impact of pricing and benefits from cost-reduction initiatives. AGCO expects production to go up 3% in 2019. The company will continue to invest in products and technology, along with improving distribution and enhancing digital capabilities, in order to drive margins and returns on invested capital.

The company projects the North American industry retail tractor sales to be flat to up 5% in 2019, with improved retail sales in the row crop segment and flat retail sales of small tractors compared with last year. AGCO anticipates industry demand in South America to improve, year on year, in 2019. Higher retail sales in Brazil will likely drive modest growth in South American industry volumes. Farm economics are expected to improve slightly across Western Europe this year, supported by favorable wheat prices and crop production. Consequently, the company predicts a relatively stable demand in European markets.

Positive Growth Projections: The Zacks Consensus Estimate for AGCO’s current-year earnings per share is currently pegged at $4.93, reflecting year-over-year growth of 26.7%. The same for 2020 is pinned at $5.41, indicating a year-over-year rise of 9.7%.

Growth Drivers

AGCO is consistently making strategic investments to enhance and expand product lines, upgrade system capabilities and improve factory productivity. In a bid to execute its product-development plan, and meet new emission requirements in Brazil and Europe, the company intends to maintain the level of investment in 2019. As a result, AGCO forecasts capital expenditures in 2019 of around $225 million, up from the prior year’s $203 million. Its spending plan for the ongoing year will stoke long-term business growth.

AGCO Corporation Price and Consensus

AGCO Corporation Price and Consensus

AGCO Corporation price-consensus-chart | AGCO Corporation Quote

Other Key Picks

Some other top-ranked stocks in the Industrial Products sector are Chart Industries, Inc. GTLS, Lawson Products, Inc. LAWS and Harsco Corporation HSC, each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Chart Industries has an estimated earnings growth rate of 52.9% for the ongoing year. The company’s shares have gained 10.1%, in the past year.

Lawson Products has an expected earnings growth rate of 24.5% for the current year. The stock has appreciated 45.5% in a year’s time.

Harsco has a projected earnings growth rate of 9.1% for 2019. The company’s shares have gained 6.5%, over the past year.

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