On Jan 14, we issued an updated research report on AGCO Corporation AGCO. Lackluster market for the North and South America segment, prevalent trade uncertainties, elevated expenses and unfavorable foreign currency remain near-term headwinds.
Trade Tiff & Poor Harvesting
Late harvest and early winter weather are keeping corn and soybean harvests in North America under pressure, straining the North American industry retail tractor sales volume. Moreover, the U.S Agriculture industry has been grappling with low commodity prices and sluggish farm income. Tariffs imposed by China on U.S. agricultural exports last year dealt a severe blow, as the former is the largest export market for U.S. agriculture producers.
Consequently, prevalent trade tensions, along with poor growing and harvesting conditions, have made farmers more cautious about spending on new farm equipment. These factors are likely to affect AGCO’s revenues in the days to come. However, according to the phase one trade agreement, China has committed to the purchase of U.S. farm products worth $40-$50 billion.
Bleak Market Outlook
AGCO projects its net sales for 2019 at $9.3 billion, down from the prior-year quarter’s $9.35 billion, reflecting the negative foreign currency-translation impact and relatively flat sales volume. Industry retail sales in South America might be hurt by a bleak macro-economic scenario in Brazil and tepid demand in Argentina. Also, industry retail sales in Western Europe will likely be thwarted by soft industry demand.
Elevated Expenses to Hurt Margin
Rising steel prices resulting from the tariff imposed by the U.S. government might dampen AGCO’s margins. The company also expects currency translation to depress top-line growth. Moreover, engineering expense is predicted to flare up. These factors will impact AGCO’s performance in the days ahead.
Share Price Performance
AGCO’s shares have appreciated 19.9% over the past year, outperforming the industry’s growth of 10.4%.
Zacks Rank & Stocks to Consider
AGCO currently carries a Zacks Rank #5 (Strong Sell)
Some better-ranked stocks in the Industrial Products sector are DXP Enterprises, Inc. DXPE, Cintas Corporation CTAS and Graphic Packaging Holding Company GPK. While DXP Enterprises sports a Zacks Rank #1 (Strong Buy), Cintas and Graphic Packaging carry a Zacks Rank of 2 (Buy), at present. You can see the complete list of today's Zacks #1 Rank stocks here.
DXP Enterprises has an estimated earnings growth rate of 10.5% for the ongoing year. In a year’s time, the stock has appreciated 23.1%.
Cintas has an expected earnings growth rate of 15.6% for the current year. The stock has surged 57.8% over the past year.
Graphic Packaging has a projected earnings growth rate of 13.1% for 2020. The company’s shares have gained 40.5% over the past year.
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