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Solid Demand in End Markets to Aid Lindsay's (LNN) Growth

·5 min read

Lindsay Corporation LNN is well-poised to gain on improving farm dynamics in the United States owing to rising farm income and increasing commodity prices. The company’s infrastructure business is also positioned well, courtesy of strong demand for Road Zipper projects and transportation safety products and higher infrastructure spending. A strong balance sheet, focus on introducing technologically advanced products, and investment in organic growth and acquisitions will drive growth for the company.

Favorable Farm Fundamentals Bode Well

Lindsay is witnessing improving order levels aided by favorable agricultural market conditions in North America. Prices of corn and soybean, the most important grains for cash crop farming in the United States have been gaining this year. Per the United States Department of Agriculture’s (USDA) latest report, for 2021 average corn yield is forecast at 174.6 bushels per acre, and soybean yields are expected to average 50.0 bushels per acre. Both are, however, lower than USDA’s July estimates, which led to an uptick in commodity prices. In this backdrop of strong demand and apprehensions regarding the drought conditions, prices are likely to go up further.

On top of this, Brazil’s second corn crop has plunged to 10-year low due to unfavorable weather. This will further widen the gap between demand and supply and push up prices. High commodity prices and the consequent pickup in farm income will persuade farmers to continue spending on agricultural equipment, which in turn will drive Lindsay’s top line.

Infrastructure Business Poised to Grow

The company’s infrastructure business is benefiting from the strong momentum in Road Zipper Systems. 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, which has led to its global popularity.

In September 2020, the Fixing America's Surface Transportation (FAST) Act has been extended for one year. The extension includes $13.6 billion to maintain the Highway Trust Fund's solvency at current funding levels ($47.1 billion for highway programs and $12.3 billion for transit programs) through fiscal year 2021. This extension will provide much-needed funding certainty to state and local governments navigating significant revenue shortfalls due to the COVID-19 pandemic. With the U.S Senate passing the $1 trillion infrastructure bill, the perked up investment in roads represents a huge opportunity for the segment.

Investment in Technology to Provide Competitive Edge

Focus on bringing technologically advanced products to the market will fuel Lindsay’s top line. In April 2020, the company completed the buyout of Net Irrigate, LLC, which will expand the number of irrigated acres managed under the company’s FieldNET platform. This acquisition strengthens Lindsay’s market position in remote monitoring capabilities. The company is witnessing strong growth in technology penetration, which will aid performance in the days ahead. The company expected new product revenues as a percentage of total revenues to go up from 2% in fiscal 2017 to 15% in 2023.

A Solid Balance Sheet

Lindsay has a strong balance sheet that will help it navigate the coronavirus-induced uncertainty. As of May 31, 2021, the company had an available liquidity of $190.5 million, with $140.5 million in cash, cash equivalents and marketable securities and $50 million available under revolving credit facility. Lindsay's total debt was around $115.8 million, of which $115 million matures in 2030. The company’s total debt to capital ratio has gone down to 0.26 as of May 31, 2021 from 0.29 as of May 31, 2020. It is also much lower than the industry’s total debt to capital ratio of 0.76. Its times interest earned ratio was 13.8, much better than the industry's 5.2. Lindsay’s capital-allocation plan is to continue investing in organic growth and make synergistic acquisitions while enhancing returns to stockholders. Capital expenditures for fiscal 2021 are expected between $25 million and $27 million, including equipment replacement, productivity improvements and new product development.

Price Performance

Lindsay’s shares have gained 60.2% in the past year compared with the industry’s rally of 80.2%.

Zacks Rank

At present, Lindsay carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Other Stocks to Consider

Some other top-ranked stocks in the Industrial Products sector include Encore Wire Corporation WIRE, Deere & Company DE and Titan International Inc. TITN. While Encore Wire flaunts a Zacks Rank #1, Deere and Titan International carry a Zacks Rank #2.

Encore Wire has a projected earnings growth rate of 332.6% for fiscal 2021. In a year’s time, the company’s shares have gained 60%.

Deere has an estimated earnings growth rate of 107% for the ongoing year. The company’s shares have appreciated 88% in the past year.

Titan International has an estimated earnings growth rate of 155% for the current year. The company’s shares have soared 130% in the past year.

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Lindsay Corporation (LNN) : Free Stock Analysis Report

Deere & Company (DE) : Free Stock Analysis Report

Titan Machinery Inc. (TITN) : Free Stock Analysis Report

Encore Wire Corporation (WIRE) : Free Stock Analysis Report

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