Markets

Bear of the Day: AGCO (AGCO) - Bear of the Day

AGCO Corporation ( AGCO ) recently disappointed Wall Street when it cut quarterly and full year guidance due to lower sales across all regions. This Zacks Rank #5 (Strong Sell) is expected to see a double digit earnings drop in both 2014 and 2015.

AGCO makes farm equipment, including tractors, combines, hay tools, sprayers, forage equipment, tillage, implements, grain storage and protein production system.

It sells 5 core brands: Challenger, Fendt, Massey Ferguson, Valtra and GSI through 3,100 independent dealers in 140 countries.

AGCO Lowered Guidance

On Oct 7, AGCO lowered third quarter and full year earnings guidance as it experienced weaker than anticipated levels of demand throughout the third quarter. It's expecting lower sales across all regions, lower production and a drag from foreign currency translation.

It lowered its full year guidance to the range of $4.10 to $4.30, down from about $5.00.

The analysts didn't waste any time slashing estimates. 11 estimates were cut for 2014 pushing the Zacks Consensus down to $4.22 from $4.87 only 30 days before. That's an earnings decline of 30% from 2013.

2015 is also looking grim. 12 estimates were cut, pushing the 2015 Zacks Consensus down to $3.49. That's another earnings drop of 17%.

Farmers and the farming industry had been living high for many years, even during the Great Recession as corn and soybean prices soared and demand remained strong.

Now, conditions have changed. The U.S. crops are expected to be massive but demand has also dropped. Cash crop receipts are expected to fall through 2016 which is why the analysts are also slashing 2015 estimates.

A crop supply glut isn't good news for equipment sales. AGCO has been in business a long time and knows the cycles.

Shares at New 52-Week Low: Is it a Deal?

It hasn't been a good year for shareholders. Shares plunged to a new 52-week low on the announcement of the lowered guidance.

You might think you're getting a deal on the shares now as they trade with a forward P/E of 10.7.

But with earnings expected to sink over the next 16 months, there's not a lot of reason to get in right now.

I really wouldn't recommend any of the agriculture equipment makers right now because they're all facing the same lack of demand. The Farm Equipment industry is at the bottom 6% of the Zacks Ranked Industries.

But if you're interested in investing in agriculture, you might want to consider agribusiness company Bunge Limited ( BG ) instead. It's a Zacks Rank #1 (Strong Buy) and is expected to grow earnings by 23% this year.

Want more articles from this author? Scroll up to the top of this article and click the FOLLOW AUTHOR button to get an email each time a new article is published.

Want More of Our Best Recommendations?

Zacks' Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Then each week he hand-selects the most compelling trades and serves them up to you in a new program called Zacks Confidential .

Learn More>>

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec .

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

BUNGE LTD (BG): Free Stock Analysis Report

AGCO CORP (AGCO): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

AGCO BG

Other Topics

Investing Stocks