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Bank Of America Advises Selling AGCO Shares

Shanthi Rexaline

Bank of America Merrill Lynch downgraded AGCO Corporation (NYSE: AGCO) on data suggesting the global tractor market recovery is not materializing.

The firm downgraded AGCO from Neutral to Underperform and lowered its price target for the company from $75 to $70.

At the time of writing, the farm equipment company's  shares were sliding 2.75 percent to $72.60.

Weakness All Around

While AGCO expected flat Brazilian demand in the second half of 2017 following a sharp recovery in the first half, analyst Ross Gilardi said Brazilian tractor sales instead fell in the third quarter.  

Citing Deere & Company (NYSE: DE)'s sunny outlook in Brazil, Giladi said competition might be taking a toll on AGCO

Recent tractor data from Europe, which accounts for 80 percent of AGCO's EBIT, is incrementally weaker, Gilardi said. (See Gilardi's track record here.)

North America didn't fare any better, with a 14 percent decline in HHP tractor sales in September on top of a 2 percent drop in August.

BofA lowered its 2018-19 EPS estimate for AGCO by 3-4 percent on the weak tractor data.

Valuation Unattractive

While the global tractor market data remained negative, Gilardi said AGCO stock was trading at an all-time high, discounting a sustained farm equipment recovery.

With the stock having hit BofA's previous price objective of $75, the analyst said he doesn't project it will push higher. 

CNH Industrial NV (NYSE: CNHI) and Deere, though impacted by weak agricultural equipment data, are more diversified, with Buy-rated CNH Industrial remaining a compelling break-ups tory, Gilardi said. 

Deere is expected to close soon on  the highly accretive Wirtgen acquisition, which is yet to be reflected in consensus estimates, the analyst said. 

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Latest Ratings for AGCO

Date Firm Action From To
Oct 2017 Bank of America Downgrades Neutral Underperform
Oct 2017 JP Morgan Downgrades Neutral Underweight
Aug 2017 BMO Capital Maintains Market Perform

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