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Lindsay (LNN) Stock Down 17% YTD: Is a Turnaround Possible?

Zacks Equity Research

Shares of Lindsay Corporation LNN have declined 17% so far in 2019, against the industry’s growth of 11.1%.

The company has a market cap of roughly $862 million. Average volume of shares traded in the past three months was around 113.73K.

Factors Weighing on the Stock

Lindsay Corporation’s share price dipped 6% following its second-quarter fiscal 2019 (ended Feb 28, 2019) results reported on Apr 9, 2019. The company delivered adjusted net earnings of 2 cents per share, reflecting a year-over-year plunge of 96%. The bottom line significantly lagged the Zacks Consensus Estimate of 62 cents.

Commodity prices remain under pressure, owing to a record soybean and near-record corn harvest. Further, it was affected by reduced exports, as a result of the ongoing U.S-China trade dispute. Even though as per USDA’s latest available report, net farm income is likely to rise 10% to $69.4 billion in 2019, it still remains substantially below the 10-year U.S. net farm income average of $85.3 billion (in nominal dollars) primarily owing to weaker prices for most major crops. This weak forecast and lower commodity prices, signals the likelihood of continued constrained demand for irrigation equipment in North America.  This will continue to impact Lindsay’s revenues. Moreover, higher input costs due to the implementation of tariffs will hurt margins.

Will the Stock Rebound?

Despite the weak agricultural markets, Lindsay anticipates its irrigation operating margin performance in the United States to benefit from the strength and growth of technology products. During the fiscal second quarter of 2019, the company introduced Field NET Pivot Watch, a low-cost solar-powered remote telemetry device that mounts onto any central pivot irrigation system.

Lindsay’s infrastructure business continues to generate growth on the back of strong order activity for the Road Zipper projects. Road Zipper 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. The American Road & Transportation Builders Association projects U.S transportation construction spending to increase 4% in 2019. Consequently, the company continues to focus on growing this business.

Lindsay also remains 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. The company has streamlined leadership team structure, made four divestitures, closed Omaha, NE manufacturing facility, announced shared services consolidation plans and improved several internal business processes. 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. The company expects to incur additional costs regarding this initiative over the next several quarters. These additional costs are anticipated to be recovered through improved operating income in fiscal 2020. The Foundation for Growth initiative is expected to improve the overall net earnings of the company in the months ahead. This will aid the stock’s performance going forward.

Zacks Rank and Stocks to Consider

Lindsay currently carries a Zacks Rank #3 (Hold).

Meanwhile, investors interested in the Industrial Products sector can consider better-ranked players like Harsco Corporation HSC, Roper Technologies, Inc. ROP and Timken Company TKR. All of these stocks carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Harsco Corporation has expected earnings growth rate of 9.16% for 2019. The company’s shares have rallied 34% year to date.
Roper Technologies has projected earnings growth rate of 9.40% for the current year. The stock has appreciated 37.1% year to date.
Timken has estimated earnings growth rate of 26.56% for the ongoing year. The company’s shares have gained 33.5% year to date.

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