AGCO Shows Stability on Fundamentals - Analyst Blog
08 April 2014 - 11:50PM
Zacks
On Apr 3, 2014, we issued an updated research report on
AGCO Corporation (AGCO). This manufacturer of
agricultural equipment reported fourth-quarter 2013 adjusted
earnings of $1.40 per share, which improved 41% year over year and
came ahead of the Zacks Consensus Estimate.
The company remains committed to its plans of expanding in the
Commonwealth of Independent States (CIS), China and Africa. Last
year, AGCO entered into a 50-50 joint venture (JV) with Russian
Machines to manufacture and distribute agricultural equipment and
replacement parts in Russia.
Further, the company plans to invest in production facilities in
China over the next 15 years. AGCO intends to widen its presence in
Africa and has $100 million of investment in pipeline for the
coming years.
Additionally, the company’s efforts to enhance shareholders’ value
was evident when a 10% hike in the quarterly payout was announced
in Jan 2014. Moreover, AGCO increased its share repurchase program
to $500 million, which will likely be complete over the next 18
months. The company will continue investing for driving growth and
profitability with additional investments in plants and new
products. It will also target another strong year of solid free
cash flow for 2014.
For 2014, AGCO expects GSI sales to be up 10%–15% from 2013, with
most of the growth occurring outside the U.S. The countercyclical
nature of the protein production sector supports more stable
earnings in GSI. In the long term, an increase in the world’s
population and change in diet are expected to create demand for
additional grain storage and protein production capacity.
However, AGCO reiterated its full-year 2014 earnings per share
guidance of $6.00, which reflects a 0.2% year-over-year dip. The
company also cautioned that a fall in commodity prices in 2014 as
compared to 2013 will lead to reduced farm income and softer
industry demand across the developed agricultural equipment
markets. AGCO is projecting net sales in the range of $10.8 billion
to $11.0 billion for 2014, relatively flat as compared with 2013.
The guidance includes the impact of softer market conditions.
In addition, product demand is expected to fall in the near term
due to decrease in farm income and crop prices as well as a less
favorable renewable fuel standard (RFS). Notably, the RFS is likely
to drag the demand for corn, thereby lowering the need for
agricultural equipment as well. The company also anticipates rise
in market development expenses and engineering expenditures (for
meeting Tier 4 final emission requirements) to continue weighing on
margins.
Furthermore, the absence of an extension of current depreciation
tax benefits beyond 2013 (in the U.S.) and potential FINAME
borrowing cost increases (in Brazil) could pressure AGCO’s
earnings.
AGCO currently carries a Zacks Rank #4 (Sell).
Other Stocks to Consider
Some better-ranked machinery makers worth consideration include
Alamo Group, Inc. (ALG), Broadwind Energy,
Inc. (BWEN) and Altra Industrial Motion
Corp. (AIMC). All of these have a Zacks Rank #2 (Buy).
AGCO CORP (AGCO): Free Stock Analysis Report
ALTRA HOLDINGS (AIMC): Free Stock Analysis Report
ALAMO GROUP INC (ALG): Free Stock Analysis Report
BROADWIND ENRGY (BWEN): Free Stock Analysis Report
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