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4 Top Farm Equipment Stocks to Grab on Solid Farm Prospects

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The Zacks Manufacturing - Farm Equipment industry is gaining from the upbeat commodity prices. This will help improve farm income and encourage farmers to spend on agricultural equipment that will support the industry in the days to come. Over the long term, rising population, and elevated global demand for food and efficient water use will fuel demand for the industry’s equipment. Moreover, investments in advancement of farming technologies, precision agriculture and smart farming solutions will spur growth.

Upbeat Commodity Prices to Drive Farm Equipment Demand

Agricultural commodity prices are gaining from a rising demand environment amid limited supply. Further, strong grain demand and supply constraints are likely to push commodity prices higher. Principal crop cash receipts in the United States are expected to increase in 2021 on higher commodity prices. These factors will boost farm income and encourage farmers to invest in farm equipment. Moreover, replacement demand for age-old equipment will keep spurring farm equipment demand in the near term.

Last year, the industry grappled with waning demand and lower commodity prices due to the coronavirus pandemic. The livestock and dairy markets were hit hard due to the overall disruption of the food supply chain and changes in consumption patterns. Nevertheless, with several COVID-19 aid packages announced by the U.S. Department of Agriculture (USDA) for U.S. farmers and livestock producers, the industry managed to sail through the crisis. Also, the Federal Government’s direct farm program payments through Coronavirus Food Assistance Program ("CFAP”) provided assistance to farmers affected by market disruptions. This led to a surge in farm income by 44.2% in 2020 — the highest level since 2013.

However, due to lower direct government farm payments in the current year, the USDA projects net farm income to decline 8.1% to $111.4 billion in 2021. Notwithstanding the decline projected this year, net farm income would still be 21% above its 2000-19 average of $92.1 billion.

Technological Advancements

Customers are increasingly relying on advanced technology, smart farming solutions and mechanization to run their operations. The companies in the industry are now enhancing investments in precision farming and capabilities, in order to keep up with the evolving demands for agricultural equipment. Initiatives to expand in the precision agriculture technology will be a game changer for industry players.

Pandemic-induced Uncertainty Lingers

The pandemic has affected U.S. agricultural exports, which had already been reeling under the unfavorable impact of the U.S.-China trade spat. Per the U.S-China Phase one trade deal, China had pledged to increase purchases of U.S. agricultural products by $32 billion over a period of two years. Though elevated exports to China over the last few quarters have boosted U.S. customer sentiment, it remains be seen whether or not China will be able to honor its terms of the agreement. Furthermore, the resurgence of COVID-19 cases is a major concern as it might impact commodity prices again. Farmers will likely adopt a cautious stance regarding their spending on equipment.

Industry Performance

The Zacks Manufacturing - Farm Equipment industry has outperformed the sector and the S&P 500 over the past six months. Stocks in this industry have appreciated 41.8% compared with the Zacks Industrial Products sector’s growth of 17.3%, while the S&P 500 has gained 14.7%.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

4 Manufacturing - Farm Equipment Stocks Worth Attention

We have picked four Farm Equipment stocks carrying a Zacks Rank #2 (Buy) or 3 (Hold). These stocks have positive earnings growth projections for the current year and also been witnessing upward revisions, of late.

Deere & Company DE: Based in Moline, IL, Deere is the world’s largest producer of agricultural equipment. The company is poised well to benefit from the improving farm economy. Robust order activity will improve Deere’s performance in fiscal 2021. Efforts to reduce operating expenses will drive margins. It is making investments in new products and technologies in an effort to make farming automated, easy to use and more precise across the production process.

The Zacks Consensus Estimate for the company’s fiscal 2021 earnings has been revised upward by 10.6% over the past 60 days to $17.54. The estimate also suggests a year-over-year jump of 101.8%. The company’s shares have gained 41.5% over the past six months. It has a trailing four-quarter average earnings surprise of 67.9% and currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AGCO Corporation AGCO: Based in Duluth, GA, AGCO is a leading manufacturer and distributor of agricultural equipment and related replacement parts. The company’s stellar sales volume, pricing and positive impacts of foreign-currency translation are likely to deliver impressive results for the current year. Apart from this, increasing replacement demand for age old equipment will drive its top line. AGCO continues to invest in premium technology and smart farming solutions in a bid to strengthen product offerings. In addition, cost-control actions in response to material cost inflation will likely drive margins.

The Zacks Consensus Estimate for the company’s ongoing-year earnings is currently pegged at $8.67, suggesting a year-over-year increase of 54.6%. The consensus mark has moved 18.9% north over the past 60 days. The stock has rallied 55.6% in the past six months. The company currently carries a Zacks Rank of 2 and has a trailing four-quarter earnings surprise of 428.4%, on average.

Titan International, Inc. TWI: Based-in Quincy, IL, the company is a leading global manufacturer of off-highway wheels, tires, assemblies and undercarriage products. Titan is gaining on strong agricultural fundamentals that will reflect on its top-line results. Higher crop prices, lower inventory levels for new equipment and healthy farm income will aid the company’s performance this year. Titan will also benefit from the implementation of pricing actions to mitigate escalating raw materials, labor and logistics costs.

The Zacks Consensus Estimate for the company’s current-year earnings has been revised upward by a whopping 900% over the past 60 days to 20 cents. The estimate also suggests a year-over-year surge of 120.2%. The company’s shares have soared 61.8% in six months’ time. It has a trailing four-quarter average earnings surprise of 35.2% and carries a Zacks Rank of 3, at present.

Lindsay Corporation LNN: Based in Omaha, NE, Lindsay provides a variety of proprietary water management, and road infrastructure products and services. The company is benefiting from its Foundation for Growth initiative, which will likely boost the bottom line in the days ahead. Its infrastructure business is poised to grow on the Highways England project as well as contribution from Road Zipper Systems. Apart from this, the company is witnessing improved order levels on favorable farm prospects.

The Zacks Consensus Estimate for the company’s fiscal 2021 earnings has moved 2% upward over the past 60 days to $3.59. The estimate calls for year-over-year growth of 0.8%. The company has a trailing four-quarter average earnings surprise of 8%. This Zacks #3 Ranked stock has appreciated 41.1% over the past six months.

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