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AGCO Corporation

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Are the good times over for the agriculture companies? AGCO (AGCO - Free Report) is still expected to post double digit earnings growth in 2012 as agriculture equipment demand stays strong. This Zacks #1 Rank (Strong Buy) is also cheap, with a forward P/E of just 7.5 as shares have weakened in the last few weeks.

AGCO is a Duluth, GA based maker of agriculture equipment. The company sells in more than 140 countries through a team of independent dealers and distributors.

The company has 4 core brands: Challenger, Fendt, Massey Ferguson and Valtra.

AGCO Hasn't Missed In 5 Years

AGCO reported first quarter results on May 1 and surprised on the Zacks Consensus by 40%. Earnings per share were $1.21 compared to the consensus of 86 cents.

It kept intact one of the most impressive earnings surprise streaks I have seen out of any company. Not even Apple has beaten every quarter for the past five years.

Sales rose 19.4%, excluding a 11.4% benefit of acquisitions and the 4.3% unfavorable impact of currency translation. Despite the Eurozone crisis, sales growth was actually strongest in Western and Eastern Europe where farming conditions are returning to normal levels. Record farm income in North America also contributed to strong sales there.

"Currently, inventories of grain remain at historically low levels on a stocks-to-use basis," said Martin Richenhagen, President and CEO.

"Elevated soft commodity prices, resulting from these positive supply/demand dynamics, are providing support for farm income and our industry," he added.

Outlook For 2012 Remains Good

There was no gloom and doom about the farming sector in early May from AGCO. Growth was expected to continue in Western and Eastern Europe for the year.

In North and South America, market conditions were projected to remain "strong".

Jitters About 2012?

Despite the company's positive outlook in May, the analysts have grown a bit jittery. In the last 30 days, 2 estimates out of 14 have been revised lower for 2012. That has pushed the Zacks Consensus down by 3 cents to $5.53.

But that is still earnings growth of 23% as the company made just $4.48 last year.

Extreme Value

I've been talking about how undervalued the agriculture stocks are and AGCO is one of them. Investors have fled the stock in the past few weeks on jitters about the overall global economy.

This sell off has made AGCO even more undervalued.

In addition to a P/E under 10, the company has a price-to-book ratio of 1.2. A P/B ratio under 3.0 usually indicates value.

It also has a stellar price-to-sales ratio of only 0.4. A P/S ratio under 1.0 can mean a company is undervalued.

Other benefits to shareholders appear to be in the works.

While the company doesn't pay a dividend currently, AGCO told the Financial Times in early June that it expects to pay a dividend at some point in 2012. It would be the first dividend in 22 years. Stay tuned for further announcements on that.

AGCO is scheduled to report second quarter results on July 26. This may be the quarter where we'll really find out if this growth can be sustained in 2012.

Tracey Ryniec is the Value Stock Strategist for She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her on twitter at @TraceyRyniec.

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