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Lindsay's Prospects Bleak on Dismal Agricultural Market

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Lindsay's Prospects Bleak on Dismal Agricultural Market

Lindsay's (LNN) performance likely to be hurt by lackluster agricultural market in North America, elevated costs and tariffs.

On Sep 27, we issued an updated research report on Lindsay Corporation LNN. A lackluster agricultural market in North America continues to hamper the company’s performance. Elevated costs and tariffs on steel prices also remain concerns.

Notably, the North American agricultural market conditions will likely remain challenged due to lower commodity prices and farm income. Per the latest projections of the United States Department of Agriculture (USDA), net farm income will likely decline around 13% to $65.7 billion in 2018 from 2017 — the lowest net farm income level in nominal dollar terms since 2002.

Further, Lindsay expects commodity prices to remain constrained following record harvests in fiscals 2016 and 2017, in the United States, as well as due to high stock levels. Also, China has begun levying retaliatory tariffs on U.S. agricultural exports, particularly soybeans, sorghum, and live hogs. This will hurt farmers further and affect demand for irrigation equipment.

Lindsay will also bear the brunt of elevated costs incurred in connection with its Foundation for Growth performance improvement initiative. The company’s third-quarter fiscal 2018 results include pretax costs of $7.6 million, comprising severance costs and professional consulting fees incurred in connection with this initiative. Additional costs are anticipated in connection with this initiative over each of the next several quarters which will dampen the company’s earnings.

In addition, the imposition of the 25% tariff on steel imports will dent its performance, as Lindsay uses steel as a major raw material to manufacture products.

Moreover, Lindsay’s shares have underperformed the industry with respect to price performance over the past year due to these challenges. The stock has gained around 8%, while the industry has recorded growth of around 16% during the same time frame.

Zacks Rank & Stocks to Consider

Currently, Lindsay carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the same sector include Atkore International Group Inc. ATKR, Caterpillar Inc. CAT and Lawson Products, Inc. LAWS. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Atkore has an expected long-term growth rate of 10%. Its shares have gained 34% over the past year.

Caterpillar has an estimated long-term growth rate of 15.6%. Its shares have been up 22% in a year’s time.

Lawson Products has a projected long-term growth rate of 17.5%. Its shares have rallied 30% over the past year.

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