Soaring demand for food production has been a boon for Lindsay Corporation (LNN), which hit a new 52-week high after announcing strong fiscal first-quarter results on January 8. The quarter included a positive earnings surprise of more than 53%.
This Zacks Rank #1 (Strong Buy) manufacturer of irrigation equipment should be able to sustain its price momentum going forward, as is evidenced from its expected long-term earnings growth rate of 13.5%.
Lindsay reported first-quarter 2013 (ended Nov 30) earnings per share of $1.15, beating the Zacks Consensus Estimate of 75 cents and increasing five-fold from last year's 23 cents. The earnings increase was led by higher demand for domestic irrigation systems, expansion in irrigation margins, a strong pricing environment and fixed cost leverage on higher sales.
Revenues improved 24% year over year to $147.4 million, ahead of the Zacks Consensus Estimate of $130 million. The year-over-year increase in revenues stemmed from a 33% improvement in total irrigation equipment revenues, which was led by a 59% increase in Domestic irrigation revenues. However, infrastructure revenues fell 29% in the quarter.
Lindsay expects positive farmer sentiment and increased farm incomes & commodity prices to have a positive impact in fiscal 2013. Lindsay also expects long-term demand to remain high, driven by increased food production and efficient water use. Even though infrastructure sales declined during the quarter, it is expected to pick up through the remainder of the year.
Clear Upward Trend in Earnings Estimates
The past 7 days have seen upward revisions from 6 of 7 estimates for fiscal 2013, sending the Zacks Consensus Estimate higher by 14.1% to $4.70 a share. This indicates a year-over-year increase of approximately 39%. The Zacks Consensus Estimate for fiscal 2014 increased 13.9% to $5.01 in that time, as 4 of 6 estimates were raised. This suggests year-over-year growth of 6.6%.
Valuation is Expensive but Justified
Lindsay's valuation looks expensive compared to its peers with respect to most metrics. The stock is currently trading at a forward P/E of 19.15x and has a trailing twelve months P/E of 20.92x, which are both at a premium to peer group averages. Meanwhile, the price-to-book of 3.51x and price-to-sales of 1.98x are above peer group averages. While investors can get jittery looking at this valuation, the long-term earnings potential remains impressive.
Lindsay has a 1-year ROE of 18%, higher than its peer group average of 14.8%, reflecting efficient capital deployment.
Sound Technicals and Healthy Performance
Lindsay is currently trading well above its 50- and 200-day moving averages, which stand at $78.30 and $69.40, respectively. Interestingly, following a golden crossover in the March 2012, the 50-day moving average continues to read higher than the 200-day moving average, manifesting the bullish trend.
On the performance front, Lindsay has outperformed the S&P 500 over the past year and has delivered a year-to-date return of 12.3% versus 3.3% for the benchmark.
Omaha, Nebraska-based Lindsay is a leading designer and manufacturer of self-propelled center pivot and lateral move irrigation systems, which are used principally in agriculture to increase or stabilize crop production while conserving water, energy and labor. The company also manufactures and markets various infrastructure products, which include movable barriers for traffic lane management, crash cushions, preformed reflective pavement tapes and other road safety devices. Operating since 1955, the company now has a market cap of roughly $1.16 billion. The company sells its branded irrigation products primarily to a worldwide independent dealer network, who in turn resell to their customers.
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