AGCO Corporation AGCO looks promising at the moment backed by its stellar earnings performance in the June-end quarter as well as anticipated benefit from margin improvement, strategic investment in products, technology, and a solid capital-allocation plan. We are optimistic about the company’s prospects and believe this is the right time to add the stock to your portfolio, as it is poised to carry the bullish momentum ahead.
AGCO’s shares have appreciated 26.6% over the past year, outperforming the industry’s growth of 7.8%. The company has an estimated long-term earnings growth rate of 13.9%.
The company currently flaunts a Zacks Rank #1 (Strong Buy) and has a VGM Score of B. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 or 2 (Buy), offer the best investment opportunities.
Let's delve deeper into the factors that make AGCO stock a compelling investment option at the moment.
What’s Working in Favor of AGCO?
Earnings Beat Consensus Mark in Q2:
AGCO’s second-quarter 2019 adjusted earnings per share of $1.82 surpassed the Zacks Consensus Estimate and increased 37.8% year over year.
Positive Earnings Surprise History
AGCO outpaced the Zacks Consensus Estimate in all of the trailing four quarters, the average positive earnings surprise being 33.84%.
In 2019, AGCO anticipates gross and operating margins to be higher than 2018 levels, as the positive impact of pricing and benefits from cost-reduction initiatives will likely mute the unfavorable impact of a softer market outlook for the North and South America segment. The company expects a relatively stable global industry demand for the current year. Considering these, AGCO now forecasts 2019 adjusted earnings per share of $5.10, up from the previous estimate of $4.90.
Earnings estimate revisions have the greatest impact on stock prices. The Zacks Consensus Estimate for AGCO’s current-year earnings moved up around 3.2% over the past two months, reflecting analysts’ confidence in the stock.
Healthy Growth Projections: For 2019, the Zacks Consensus Estimate is currently pegged at $5.08, reflecting year-over-year growth of 30.6%. The same for 2020 is pegged at $5.55, calling for a year-over-year jump of 9.3%.
Return on Assets
AGCO currently has a Return on Assets (ROA) of 4.8%, while the industry recorded ROA of 4.5%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.
AGCO’S price-to-earnings ratio suggests that shares are underpriced currently, which seems to be attractive for investors. The company has a trailing P/E ratio of 15.6, below the industry average of 16.9.
Growth Drivers in Place
AGCO is consistently making strategic investments to enhance and expand its product lines, upgrade system capabilities as well as improve factory productivity. In a bid to execute its product-development plan and meet the latest emission requirements in Brazil and Europe, the company intends to increase the investment level in 2019. Consequently, AGCO expects current-year capital expenditures of roughly $225 million, up from the $203 million reported in 2018.
AGCO has completed two acquisitions in the last two years. In September 2017, it acquired Precision Planting — a leader in innovative planting technology. In October 2017, AGCO purchased the forage division of Lely Group, which will significantly boost its hay and forage product line in Europe, fueling growth in this market.
AGCO is focused on its long-term capital allocation plan by returning cash to shareholders. Over the past six years, the company executed share repurchases of $1.3 billion, which reduced share count by more than 25%. In the first six months of 2019, it repurchased shares worth $70 million. The company expects to generate free cash flow of $275-$300 million for 2019. This year, AGCO increased its quarterly dividend by 7% to 16 cents per share.
AGCO Corporation Price and Consensus
AGCO Corporation price-consensus-chart | AGCO Corporation Quote
Other Stocks to Consider
Some other top-ranked in the Industrial Products sector are Albany International Corporation AIN, Sealed Air Corporation SEE and UFP Technologies, Inc. UFPT While Albany International and Sealed Air sports a Zacks Rank #1, UFP Technologies carries a Zacks Rank of 2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Albany International has an estimated earnings growth rate of 33.85% for 2019. The company’s shares have rallied 40.1%, year to date.
Sealed Air has a projected earnings growth rate of 11.2% for the current year. The stock has gained 18.4% so far this year.
UFP Technologies has an expected earnings growth rate of 8.10% for the ongoing year. The stock has appreciated 31.5% year to date.
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