AGCO Corporation AGCO looks promising at the moment, aided by agriculture equipment demand, improved farm income, focus on cost-control actions as well as investments in products, technology and acquisitions. We are positive about the company’s prospects and believe this is the right time to add the stock to your portfolio as it is poised to carry on with the bullish momentum.
AGCO has a market cap of 5.63 billion. The company has an estimated long-term earnings growth rate of 8.7%.
The farm equipment maker company currently sports a Zacks Rank #1 (Strong Buy) and has a VGM Score of B. Our research shows that stocks with a VGM Score of A or B, combined with a Zacks Rank #1 or 2 (Buy), offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Let's delve deeper into the factors that make the AGCO stock a compelling investment option at the moment.
What’s Working in Favor of AGCO?
Earnings & Sales Beat Estimates in Q2
AGCO’s second-quarter 2020 adjusted earnings per share of $1.11 surpassed the Zacks Consensus Estimate of 7 cents. Revenues of $2,007 million also beat the consensus mark of $1,743 million.
Positive Earnings Surprise History
The company has a trailing four-quarter average earnings surprise of 409.54%
Healthy Growth Projections
The Zacks Consensus Estimate for current-quarter earnings per share is currently pegged at $1.02, indicating year-over-year growth of 24.4%. The estimate has moved 8.5% north over the past 30 days.
AGCO’s trailing 12-month EV/EBITDA ratio is 6.7, while the industry's average trailing 12-month EV/EBITDA is 13.6. Consequently, the stock is cheaper at this point based on the ratio.
Growth Drivers in Place
The U.S. farm sector seems to be showing early signs of stabilization following the passage of the United States Mexico Canada Agreement (USMCA) and the Phase 1 trade agreement with China. Per the U.S. Department of Agriculture's (USDA) latest available projections, net farm income is anticipated to increase 22.7% to $102.7 billion in 2020. In inflation-adjusted terms, the projected net farm income in 2020, if realized, would be 13.8% higher than 2000-19 average ($90.2 billion). This will make farmers resume spending on agricultural equipment, which will drive the company’s performance.
Apart from this, replacement demand for aged fleet will spur farm equipment demand. Moreover, the $16-billion COVID-19 Aid Package announced by the USDA for U.S. farmers and livestock producers is likely to marginally offset the unfavorable impact of lower commodity prices.
Global crop production is healthy and set for another record crop year, with farm operations working at normal levels. Stronger grain export demand and supportive wheat prices suggest favorable farm economics for Western European farmers. The European dairy and livestock markets have now stabilized after weakening earlier this year. Benefit of a robust first crop in Brazil and Argentina as well as favorable-exchange rates are supporting relatively positive economics in South America. Moreover, AGCO is likely to witness stellar growth in its grain and protein business on solid protein production and increased protein consumption in the days ahead.
AGCO continues to invest in products, premium technology and smart farming solutions in a bid to improve distribution and enhance digital capabilities to drive margins and strengthen product offerings. The company has been making investments to enhance and expand its product lines, upgrade system capabilities, as well as improve factory productivity. AGCO has completed two acquisitions in the past few years. It acquired Precision Planting, which is a leading manufacturer of high-tech planting equipment. The acquisition helped expand the company’s precision farming technology offerings on a global basis. Moreover, it purchased the forage division of the Lely Group, which significantly enhanced its hay and forage product line in Europe, fueling growth in this market.
The company is also implementing cost-cutting actions and has suspended further share repurchases in order to preserve liquidity amid the current turbulent situation, while expecting to maintain the payment of its quarterly dividend.
Other Stocks to Consider
Some other top-ranked stocks in the Industrial Products sector include Astec Industries, Inc. ASTE, Berry Global Group, Inc. BERY and SiteOne Landscape Supply, Inc. SITE. While Astec and Berry sport a Zacks Rank #1, SiteOne carries a Zacks Rank of 2, currently.
Astec has an estimated earnings growth rate of 13.5% for the ongoing year. The company’s shares have rallied 68.5% in a year’s time.
Berry has a projected earnings growth rate of 32.3% for fiscal 2020. The company’s shares have appreciated 21.8% over the past year.
SiteOne Landscape has an expected earnings growth rate of 15.4% for the current year. The stock has surged 61.6% in the past year.
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