AGCO Corporation AGCO is taking advantage of rising agricultural commodity prices, which encourages farmers to invest in agricultural equipment. Improving industry demand for agricultural equipment and investment in technology-driven agricultural products will continue to drive growth. However, inflated costs could hurt the company’s margin.
Higher prices to fuel demand for farm equipment
According to the USDA (US Department of Agriculture) farm income forecast, net farm income is expected to increase 19.5% from 2020 to $ 113 billion for the current year, the highest level since 2013. encourage farmers to modernize and replace their aging fleets. This, in turn, will boost AGCO’s revenue. These factors are expected to drive industry growth in all major markets during the current year.
The company expects North American industry sales to tend to increase this year due to escalating commodity prices and improving sentiment among farmers. Higher milk prices and an improved scenario for dairy farmers are likely to support the agricultural economy of the European Union (EU). Healthy income levels for farmers as well as higher prices for dairy and livestock are supporting increased demand for equipment in Western Europe during the current year. High commodity prices and favorable exchange rates fuel South America’s growth in 2021 as farmers continue to replace aging equipment.
Optimistic view on improving farm fundamentals
AGCO expects 2021 sales and profits to grow on the back of strong end market demand and a strong agricultural outlook. Net sales for the current year are projected to be between $ 10.9 billion and $ 11.1 billion. In 2020, the company reported net sales of $ 9.15 billion. Optimistic forecasts suggest improved sales volumes, positive prices and favorable impacts from foreign currency conversion. Increased sales and production volumes and pricing benefits are expected to dampen material cost inflation, which will boost AGCO’s gross and operating margins for the current year. Considering these factors, AGCO expects adjusted earnings per share (EPS) for the current year in the range of $ 8.75 to $ 9.00. The company reported adjusted EPS of $ 5.61 in 2020.
Focus on investments to drive growth
In addition to favorable market demand, the positive market response to the company’s technology-driven products is fueling sales growth and margin expansion in all regions. AGCO continues to invest in high-end products, technologies and smart agriculture solutions to improve distribution and build digital capabilities to generate margins and strengthen product offerings. These improvements will support the company’s investments in precision agriculture and digital initiatives. It also continues to invest in upgrading system capabilities, expanding product lines and improving plant productivity.
However, there are some factors that can hinder the growth of the business.
AGCO faces significant supply chain issues and rising costs for steel, logistics, transportation and labor. Engineering spending could increase by $ 50 million to $ 60 million in 2021 compared to 2020 as the company invests in smart farming and precision farming products.
AGCO shares have gained 30.8% over the past year compared to industry34% growth.
Image source: Zacks Investment Research
Zacks rank and actions to consider
AGCO currently holds a Zacks Rank # 3 (Hold).
Some better ranked stocks in the industrials sector are Encore Wire Corporation CABLE, SPX FLUX, Inc. FLOWS and Casella Waste Systems, Inc. CWST. All of these stocks are currently ranked 1 Zacks (strong buy). You can see The full list of today’s Zacks # 1 Rank stocks here.
Encore Wire has an expected earnings growth rate of approximately 491% for the current year. Zacks’ consensus estimate for current year earnings has been revised up 37% over the past 60 days.
Shares of Encore Wire have jumped 171% in the past year. The company has a surprise earnings over the past four quarters of 271%, on average.
SPX FLOW has a projected earnings growth rate of approximately 101.3% for 2021. Zacks’ consensus estimate for current year earnings has been revised up 5.3% over the years. Last 60 days.
The company’s shares have appreciated 56.9% in one year. SPX FLOW has a surprise profit over the last four quarters of 40.4% on average. FLOW shows long-term profit growth of 35.2%.
Casella Waste has an estimated profit growth rate of around 6% for the current year. Over the past 60 days, Zacks’ consensus estimate for current year earnings has been revised up 11.4%.
The company’s shares have risen 44% in the past year. Casella Waste has a surprise profit for the last four quarters of 42.1% on average. CWST shows long-term earnings growth of 14.2%.
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