Lindsay Corporation LNN is on track with its Foundation for Growth initiative that is expected to improve overall earnings. Focus on growth objectives, development of technology products, business simplification and capital-allocation plan also bode well. Further, the infrastructure business continues to generate growth on the back of strong order activity for the Road Zipper projects and robust demand for transportation safety products. This will help negate the impact of weak agricultural sector on the irrigation segment.
At present, Lindsay carries a Zacks Rank #3 (Hold). It has a VGM Score of B. 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.
Upbeat Q4 Results Despite Weak Irrigation Demand: Lindsay delivered adjusted net earnings of 54 cents per share in the fourth quarter of fiscal 2019 (ended Aug 31), surpassing the Zacks Consensus Estimate of 34 cents. Further, the bottom-line figure improved 28.5% year over year. Results reflected strong Road Zipper System sales despite challenging market conditions in the irrigation segment.
Positive Earnings Growth Projections: The Zacks Consensus Estimate for earnings for fiscal 2020 is currently pegged at $2.57, suggesting growth of 77.24% from the prior year's reported figure. The consensus estimate for fiscal 2021 stands at $3.14, indicating an improvement of 22.3% from the prior year's reported number.
Price Performance: In the past six months, the company’s shares have gained 18.6%, outperforming the industry's growth of 5%.
Growth Drivers in Place: Lindsay is poised to gain from its focus on margin expansion, growth objectives, and development of technology products, business simplification and capital-allocation plan. The company is focused on simplifying its 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 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.
Lindsay’s Road Zipper System is a highly differentiated product that positively addresses key infrastructure needs such as reducing congestion, lowering carbon emission and increasing driver safety and consequently gaining popularity globally. Further, demand for the company’s transportation safety products continues to gain traction on the back of population growth and the need for improved road safety. It continues to focus on growing this business. Moreover, Lindsay’s agreement with Iteris supports its shift-left strategy to get more involved in the planning and design stage of projects, where Road Zipper can be potentially utilized.
Lindsay’s capital-allocation plan is to continue investing in revenues and earnings growth, combined with a strategic process for enhancing returns to stockholders. Its balance-sheet strength will drive growth initiatives, both organic and through acquisitions, and other initiatives to improve returns for shareholders. For fiscal 2020, the company projects capital expenditure of $15-$20 million, which includes equipment replacement, productivity improvements and product development. Lindsay’s acquisition of Elecsys Corporation is a strategic addition to its long-term goal of leading the market in advanced technologies for managing water-usage efficiency. This acquisition will likely contribute to the development of Lindsay’s technology platform as well as improve the cost and quality of electronic technologies.
However, there are a few factors that are impeding growth in the near term.
Agricultural markets have been affected by lower commodity prices and reduced exports as a result of the ongoing U.S-China trade dispute and the weakening currency. This continues to impact demand for irrigation equipment in North America and is a drag on Lindsay’s revenues.
Stocks to Consider
Some better-ranked stocks in the Industrial Products sector are Northwest Pipe Company NWPX, Tennant Company TNC and Cintas Corporation CTAS. While Northwest Pipe Company and Tennant Company sport a Zacks Rank #1 (Strong Buy), Cintas carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today's Zacks #1 Rank stocks here.
Northwest Pipe has an expected earnings growth rate of 15.8% for the current year. The stock has appreciated 30% over the past six months.
Tennant has a projected earnings growth rate of 29.8% for 2019. The company’s shares have gained 32% in the past six months.
Cintas has an estimated earnings growth rate of 15.7% for the ongoing year. In the past six months, the company’s shares have gained 16%.
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