Lindsay Corporation LNN is poised to gain from the Foundation for Growth initiative that is expected to improve overall earnings. Further, the infrastructure business continues to fuel growth on strong order activity for the Road Zipper projects and robust demand for transportation safety products. However, the coronavirus pandemic’s impact is likely to impact Lindsay’s revenues in the near term.
Lindsay currently carries a Zacks Rank #3 (Hold). It has a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3, offer the best investment opportunities for investors.
Lindsay’s shares have gained 6.7% over the past year, as against the industry’s loss of 6.1%.
Earnings Surpass Consensus Mark in Q3
Recently, the company reported mixed third-quarter fiscal 2020 (ended May 31 2020) results. Adjusted net earnings of 93 cents per share beat the Zacks Consensus Estimate of 80 cents and surged 86% year over year. Revenues rose 2% year over year to $123 million. The top-line figure came in line with the Zacks Consensus Estimate. The company’s Foundation for Growth initiative continues to drive margins despite the COVID-19-related shipment delays hurting the top line.
Positive Earnings Surprise History
Lindsay has an impressive earnings surprise history. It beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 24.4%.
Positive Earnings Growth Projections
The Zacks Consensus Estimate for earnings for fiscal 2020 is currently pegged at $2.77, indicating a surge of 91% from the prior-year reported figure. Over the past 30 days, the consensus mark has moved 5.7% north to $2.77 per share.
Superior Return on Assets
Lindsay currently has a Return on Assets (ROA) of 5.6%, higher than the industry’s 4.3%. An above-average ROA denotes that the company is generating earnings by effectively managing its assets.
Growth Drivers in Place
Lindsay is poised to gain from focus on margin expansion, development of technology products, business simplification and capital-allocation plan. The company is focused on simplifying business, in order to improve productivity. In sync with this, Lindsay’s Foundation for Growth initiative, launched in 2018, continues to progress and is bringing positive changes. A key financial objective of the initiative is to achieve an operating margin performance between 11% and 12% by fiscal 2020. The company is fully focused on gaining margin expansion in four primary areas — manufacturing footprint, G&A, the shared services activities, sourcing and commercial. The Foundation for Growth initiative is expected to improve the overall net earnings of the company in the months ahead.
The company’s infrastructure business is poised to grow on the Highways England project and the fulfillment of a large order in Japan in the fiscal fourth quarter. Also, momentum in Road Zipper Systems will contribute to the segment’s results. Lindsay’s Road Zipper System is a highly differentiated product that positively addresses key infrastructure needs including reducing congestion, lowering carbon emission and increasing driver safety, and thus, has been gaining popularity globally. Demand for the company’s transportation safety products continues to gain traction on the population growth and the need for improved road safety. It continues to focus on growing this business.
The company’s capital-allocation plan is to continue investing in revenues and earnings growth, combined with a strategic process for enhancing returns to shareholders. Lindsay’s balance-sheet strength and ample liquidity will help it sail through the coronavirus-induced uncertainty.
Few Headwinds to Counter
The final impact of the coronavirus pandemic on the company’s results remains uncertain at this time. Lower commodity prices will also likely hurt Lindsay’s irrigation segment’s performance in fiscal 2020. Several factors that might affect commodity prices and farm income, including this year’s crop results, export demand related to the U.S.-China Phase 1 trade agreement, and the level of government support payments to assist farmers are likely to weigh on demand for the company’s products in fiscal 2021. Moreover, concerns over irrigation equipment demand, along with low commodity prices, make the outlook uncertain for the Irrigation segment for the fiscal fourth quarter.
Per the U.S-China Phase one trade deal, China had pledged to increase purchases of agricultural products by $32 billion over a period of two years. However, it is unclear at this point whether China will be able to honor its commitment following the coronavirus pandemic.
Investors might want to hold on to the stock, at present, as it has ample prospects for outperforming peers in the near future.
Stocks to Consider
Some better-ranked stocks in the Industrial Products sector are Lakeland Industries, Inc. LAKE, Energous Corporation WATT and Chart Industries, Inc. GTLS. While Lakeland Industries sports a Zacks Rank #1, Energous Corporation and Chart Industries carry a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Lakeland Industries has a projected earnings growth rate of 127.8% for fiscal 2020. The company’s shares have appreciated 50.9% in the past three months.
Energous has an expected earnings growth rate of 44% for 2020. The stock has surged 252.6% over the past three months.
Chart Industries has an estimated earnings growth rate of 2.4% for the ongoing year. The company’s shares have rallied 69.1% in the past three months.
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