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5 farm equipment stocks to watch in the bright sector

        Zacks Manufacturing – The farm equipment industry will benefit from bullish commodity prices, which will boost farmers’ incomes and lead to higher spending on farm equipment, which will support the sector in the coming days. The industry is focused on improving agriculture through technology, aiming to make farming automated, easy to use, and more accurate throughout the entire production process. Players such as Deere & Company DE, AGCO Corporation AGCO, Lindsay Corporation LNN, Alamo Group Inc. ALG and Titan International, Inc. TWI is poised to capitalize on its investment in technology, strong demand and cost containment efforts.
        Zacks Manufacturing – Agricultural Equipment consists of companies that manufacture agricultural equipment. These include tractors, combines, cotton pickers, harvesting equipment; equipment for tillage, sowing and fertilization, including sprayers, equipment for fertilization and soil preparation; hay and forage harvesting equipment, including self-propelled forage harvesters and attachments, balers and mowers, grass catchers. Some of these companies manufacture lawn and utility equipment, including lawn and lawn mowers, golf course equipment, trucks, commercial lawn mowing equipment, and lawn cultivators and snow blowers. Some players also produce irrigation equipment. Industry participants sell their equipment and related parts through independent retail dealer networks and retail stores. The industry serves the agriculture, golf and landscaping markets.
        Rising farm income bodes well: The United States Department of Agriculture (USDA) expects net farm income to reach $147.7 billion in 2022, the highest since 2013, and up 5.2% year-over-year year. It is expected that cash receipts from the production of products will reach a record level. Soybean revenues are projected to rise 30.6%, corn 16.7% and wheat 33.7% year-on-year, all driven by higher prices. Combined revenues from corn, soybeans and wheat are expected to increase by $30.7 billion, accounting for the bulk of the increase in crop cash receipts. An upbeat outlook for corn and soybeans, the most important cash crops, bodes well for farmers and could lead to higher order levels. High commodity prices will increase farmers’ incomes and force farmers to keep buying farm equipment. In addition, the need to replace obsolete equipment will support demand. High costs and supply chain problems persist: Despite commodity prices rising recently, a new round of coronavirus lockdowns in China has raised concerns that weak demand could again weigh on prices. Farmers will again take a cautious stance on equipment spending, which will negatively impact industry revenues. In addition, the cost of products for farmers, especially the cost of fertilizers, has risen. This could reduce their purchasing power if commodity prices fall again. The industry is also facing rising costs of raw materials, especially steel, and rising transportation costs. Restrictions in the availability of raw materials, labor and transport resources lead to an increase in lead time. Labor shortages can affect their level of production and weaken their ability to meet demand. Consequently, industry players are working hard to improve their financial position, save cash and improve profitability. These companies are taking cost-cutting measures, which can help keep profits in the current situation. Advances in the latest technologies. Customers are increasingly relying on advanced technology, smart farming solutions and mechanization to carry out their operations. Consequently, industry players are increasing their investment in launching products equipped with advanced technologies and features to meet the changing needs of customers. Given the benefits of increased productivity and sustainability, scaling-up initiatives for precision farming technologies will be a game-changer for industry players. Demand for popular features, including field machines and equipment for seeding and applying chemicals and fertilizers with the utmost precision, continues to grow. Population growth, coupled with rising global demand for food and efficient water use, will drive equipment demand in this industry in the long term.
        The Zacks Manufacturing Industry – Agricultural Equipment is part of the broader Zacks Industrial Products industry. The industry is currently ranked 69th on the Zacks Industry Rank, placing it in the top 27% of over 250 Zacks industries. The Zacks Industry Ranking is basically an average of the Zacks ratings of all member stocks, indicating a bright future in the near future. Our research shows that Zacks’ top 50% of industries outperform the worst 50% by more than 2 to 1. Looking at the overall earnings revision, analysts are optimistic about the group’s earnings upside potential. So far this year, revenue estimates for 2022 in the agricultural equipment manufacturing sector have increased by 3%. Before we look at a few stocks you might want to add to your portfolio, let’s take a look at recent stock market performance and valuation.
        Over the past 12 months, the Zacks Manufacturing – Agricultural Equipment industry has outperformed its own industry and the Zacks S&P 500 Composite Index. The sector’s shares have lost 4.6% over the past 12 months compared to the S&P 500′s 14.4% decline. The sector of industrial goods for the specified period fell by 21.7%.
        Based on the forward 12-month EV/EBITDA ratio (commonly used for valuing farm equipment stocks), we see that the sector is currently trading at 23.59x compared to 19.92x for the S&P 500. Forward 12-month EV /EBITDA for the industrial goods sector is 19.07x. as shown below.
       Over the past five years, the highest transaction multiple in the industry was 26.92 times, the lowest was 13.35 times, and the median was 16.40 times.
        Lindsey: Higher agricultural prices will continue to increase farmers’ incomes, thereby stimulating demand for the company’s irrigation equipment. This momentum, combined with growing food safety concerns, will drive the company’s growth in international markets. Lindsay has benefited from higher selling prices and higher sales volumes in most international irrigation markets. The company’s infrastructure business is ready for future growth thanks to the Road Zipper system. In the long term, the business is well positioned for long-term growth, supported by strong demand for transport security products and rising infrastructure spending. A strong balance sheet, focus on introducing technologically advanced products and acquisitions will drive growth. The company’s shares are up 15% in the past six months. The Zacks consensus estimate for Lindsay’s FY 2022 earnings is currently $5.95, representing a 44.1% year-on-year increase. This estimate has shifted north by 20.7% over the past 60 days. The company’s average earnings surprise for the past four quarters was 25.7%. He has a Zacks Rank #1 (strong buy). You can view the full list of today’s Zacks #1 Ranked stock here.
        Alamo Group: Consumer demand in the company’s end markets was strong, resulting in ALG’s highest quarterly sales and earnings in history. The company’s vegetation management segment has benefited from strong retail demand for agricultural, forestry, tree care products and lawn mowers in North America and Europe. The industrial equipment segment benefited from increased sales of excavators and vacuum trucks. Efficiency improvements coupled with better pricing underpinned gross margin performance and helped the company achieve double-digit operating profit growth for the first time since the third quarter of 2020. Shares have fallen 9.1% over the past six months, mainly due to continued increases in material and shipping costs, as well as supply chain disruptions that have recently resulted in material shortages. The Zacks consensus estimate for Seguin, Texas, for the current year was revised up 5.9% to $8.61 over 60 days. He currently has a Zacks Rank #2 (Buy).
        Deal: The company will continue to benefit from products with advanced technologies and features that give it a competitive edge. Efforts to expand precision farming will be an important driver of growth. Deere, the world’s largest manufacturer of agricultural equipment, is well positioned to benefit from higher agricultural prices. Its revenue will continue to be supported by replacement demand driven by old equipment upgrades. Given that it also manufactures construction equipment, it will benefit from strong demand in both the residential and non-residential construction markets. His cost containment actions will improve profits. The company’s shares have fallen 1.8% over the past six months. The Zacks consensus estimate for Moline, Illinois earnings for Fiscal Year 2022 is currently $22.94. The estimate assumes an annual growth of 20.8%. DE average earnings unexpectedly rose 7.8% over the past four quarters. Deere expects long-term earnings growth of 12.6%. DE currently has Zacks Rank #3 (Hold).
        AGCO: The company has benefited from increased farm viability and increased demand for replacement of old equipment. AGCO continues to invest in products, precision farming technologies and smart farming solutions to improve distribution and expand digital capabilities to boost profits and expand product portfolio. These efforts, combined with favorable market demand and cost containment efforts, have resulted in margin gains across all regions over the past few quarters. Shares are down 9.3% in the past six months. The Zacks Consensus estimate for the company’s FY 2022 earnings is currently $11.87, projecting 14.3% annual growth. This estimate has shifted north by 0.4% over the last 60 days. This leading manufacturer and distributor of farm equipment and related parts from Duluth, Georgia is currently rated #3 by the Zacks. AGCO’s unexpected four-quarter average revenue was 37.5%. The company expects long-term earnings growth of 9.6%.
        Titan International: The company’s agricultural and earthmoving business has experienced strong sales growth over the past few quarters. Prices for agricultural commodities and the need to replace obsolete equipment continued to support higher levels of orders in the agricultural sector. The earthmoving and construction end markets look promising as infrastructure expansion and increased construction activity are key catalysts, while the undercarriage business remains strong. Thanks to this, the company’s shares rose by 22% over the past six months. Consistent cost-cutting and cash-conservation measures have provided it with good growth opportunities. The Zacks consensus estimates the company’s FY 2022 earnings currently at $2.19 per share, implying 158% annual growth. The surprise of the company’s average earnings over the past four quarters has reached 47%. TWI currently holds Zacks Rank #3.
        Want to get the latest advice from Zacks Investment Research? Today you can download the top 7 promotions for the next 30 days. Click to get this free report Deere & Company (DE): Free stock analysis report Lindsay Corporation (LNN): Free stock analysis report AGCO Corporation (AGCO): Free stock analysis report Titan International, Inc. (TWI): Alamo Group, Inc. Free Stock Analysis Report. (ALG): Free Stock Analysis Report To read this article on Zacks.com, click here. Zacks Investment Research

Post time: Jul-14-2023