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AGCO Rides on Investments & Acquisitions Amid Inflating Costs
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On Aug 24, we issued an updated research report on AGCO Corporation (AGCO - Free Report) . The company’s performance will be backed by its focus on strategic investments, as well as acquisitions. In 2018, foreign currency translation will positively impact the company’s sales performance. However, its results might be marred by lower commodity prices and elevated expenses.
Let’s illustrate these factors in detail.
Foreign Currency Translation to Spur Growth
For 2018, AGCO reaffirmed the net sales outlook of $9.3 billion driven by improved sales volumes, positive pricing, as well as acquisition and foreign currency-translation impact. At the current exchange rates, the company expects currency translation to positively impact sales by about 1.5%. Further, acquisitions are expected to boost sales by about 2.5% in 2018.
Focus on Strategic Investments Supports AGCO
AGCO continues to make strategic investments to refresh and expand product lines, upgrade system capabilities, improve factory productivity and manage costs. The company intends to increase the level of investment in 2018 to execute product-development plans, and meet new emissions requirement in Brazil and Europe. Thus, AGCO expects capital expenditures to be up approximately $50 million this year compared with 2017 level.
Acquisitions -- Key Growth Driver
AGCO completed two acquisitions in the past year. In September 2017, it acquired Precision Planting — a leader in innovative planting technology. Further in October, the company purchased the forage division of the Lely Group, which will significantly enhance hay and forage product line in Europe. Additionally, acquisitions are anticipated to stoke the company’s growth.
Low Commodity Prices to Mar Results
Farm income remains strained due to low commodity prices. In the United States, the USDA estimates that farm income will be down 6.7% to $59.5 billion in 2018. Industry sales in Brazil were impacted last year as the prevalent macroeconomic weakness hurt farmer confidence.
Elevated Expenses to Hurt Earnings
AGCO’s results will be affected by rising steel prices resulting from the tariff imposed by the U.S. government. In 2018, engineering expenses are expected to run about 4% of sales, which amounts to an increase of approximately $40 million, compared with 2017. These expenses are likely to dent earnings.
Share Price Performance
Over the past year, AGCO has underperformed the industry with respect to price performance. The stock has lost around 8%, while the industry recorded growth of around 20% during the same time frame.
Grainger has a long-term earnings growth rate of 12.5%. The stock has appreciated 134% in a year’s time.
iRobot has a long-term earnings growth rate of 19.5%. Its shares have been up 18% in the past year.
Lawson Products has a long-term earnings growth rate of 17.5%. The company’s shares have rallied 38% over the past year.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Image: Bigstock
AGCO Rides on Investments & Acquisitions Amid Inflating Costs
On Aug 24, we issued an updated research report on AGCO Corporation (AGCO - Free Report) . The company’s performance will be backed by its focus on strategic investments, as well as acquisitions. In 2018, foreign currency translation will positively impact the company’s sales performance. However, its results might be marred by lower commodity prices and elevated expenses.
Let’s illustrate these factors in detail.
Foreign Currency Translation to Spur Growth
For 2018, AGCO reaffirmed the net sales outlook of $9.3 billion driven by improved sales volumes, positive pricing, as well as acquisition and foreign currency-translation impact. At the current exchange rates, the company expects currency translation to positively impact sales by about 1.5%. Further, acquisitions are expected to boost sales by about 2.5% in 2018.
Focus on Strategic Investments Supports AGCO
AGCO continues to make strategic investments to refresh and expand product lines, upgrade system capabilities, improve factory productivity and manage costs. The company intends to increase the level of investment in 2018 to execute product-development plans, and meet new emissions requirement in Brazil and Europe. Thus, AGCO expects capital expenditures to be up approximately $50 million this year compared with 2017 level.
Acquisitions -- Key Growth Driver
AGCO completed two acquisitions in the past year. In September 2017, it acquired Precision Planting — a leader in innovative planting technology. Further in October, the company purchased the forage division of the Lely Group, which will significantly enhance hay and forage product line in Europe. Additionally, acquisitions are anticipated to stoke the company’s growth.
Low Commodity Prices to Mar Results
Farm income remains strained due to low commodity prices. In the United States, the USDA estimates that farm income will be down 6.7% to $59.5 billion in 2018. Industry sales in Brazil were impacted last year as the prevalent macroeconomic weakness hurt farmer confidence.
Elevated Expenses to Hurt Earnings
AGCO’s results will be affected by rising steel prices resulting from the tariff imposed by the U.S. government. In 2018, engineering expenses are expected to run about 4% of sales, which amounts to an increase of approximately $40 million, compared with 2017. These expenses are likely to dent earnings.
Share Price Performance
Over the past year, AGCO has underperformed the industry with respect to price performance. The stock has lost around 8%, while the industry recorded growth of around 20% during the same time frame.
Zacks Rank & Key Picks
AGCO carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the same sector include W.W. Grainger, Inc. (GWW - Free Report) , iRobot Corporation (IRBT - Free Report) and Lawson Products, Inc. . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Grainger has a long-term earnings growth rate of 12.5%. The stock has appreciated 134% in a year’s time.
iRobot has a long-term earnings growth rate of 19.5%. Its shares have been up 18% in the past year.
Lawson Products has a long-term earnings growth rate of 17.5%. The company’s shares have rallied 38% over the past year.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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