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AGCO Corp (AGCO) Gains On Farm Equipment Demand & Investments

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On Jul 16, we issued an updated research report on AGCO Corporation AGCO. The company will gain from higher agricultural commodity prices that will likely drive agricultural equipment demand in the near term. Improved industry demand for farm equipment as well as focus on investment in precision agriculture will also continue to aid growth. However, inflated costs might dent the company’s margin.

Higher Commodity Prices to Fuel Farm Equipment Demand

Global commodity prices have regained footing after declining significantly in the earlier part of 2020 amid the pandemic. Improved commodity prices will boost farm income, encouraging farmers to resume spending on agricultural equipment.

Healthy farm fundamentals are driving AGCO’s robust replacement demand. The company anticipates the North American industry sales to trend higher this year on rising commodity prices and improved farmer sentiment. The need to replace an ageing fleet with technologically-advanced equipment will spur demand.

In European Union (EU) farming, positive farm economics and higher commodity prices are likely to support healthy demand from the arable farming segment. Industry demand in Western Europe is anticipated to be strong and grow modestly in 2021. Elevated commodity prices and favorable exchange rates will likely stoke growth in South America in the current year as farmers continue to replace aged equipment.

Upbeat View on Improved Farm Prospects

AGCO expects 2021 sales and earnings to grow on improving industry conditions. The company projects net sales for the ongoing year to lie between $10.6 billion and $10.8 billion, up from the prior forecast of $10.2 billion to $10.4 billion. The upbeat guidance suggests improved sales volumes, pricing and positive impacts of foreign-currency translation. Considering these, AGCO estimates 2021 adjusted earnings per share in the range of $8.40 to $8.60, up from the prior projection of $7.00-$7.25.

Focus on Investments to Spur Growth

Apart from favorable market demand, positive market response to the company’s technology-focused products helped AGCO register solid sales and margin growth across all regions in the March-end quarter. AGCO continues to invest in products, premium technology and smart farming solutions to improve distribution and enhance digital capabilities in order to drive margins and strengthen product offerings. The company also continues to make investments to upgrade system capabilities, expand product lines and improve factory productivity.

However, there are few factors that might impede the company’s growth.

AGCO is facing significant supply-chain challenges as capacity constraints and pandemic-related disruptions continue to impact its performance. Moreover, engineering expenses might shoot up by $50-$60 million in 2021 compared with 2020, as the company is investing in smart farming and precision farming products.

Share Price Performance

AGCO’s stock has gained 23.3% so far this year compared with the industry’s rally of 24.1%.

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Zacks Investment Research


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Zacks Rank and Stocks to Consider

AGCO currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the Industrial Products sector include Greif, Inc. GEF, Lindsay Corporation LNN and Pentair plc PNR. All of these stocks sport a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Greif has an anticipated earnings growth rate of 47.2% for fiscal 2021. The company’s shares have gained around 29.3%, year to date.

Lindsay has an estimated earnings growth rate of 1% for the ongoing fiscal year. Year to date, the company’s shares have rallied 29.1%.

Pentair has a projected earnings growth rate of 26% for the current year. The stock has appreciated around 29%, so far this year.


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