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Here's Why Hold Strategy is Apt for Lindsay (LNN) Stock Now

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Lindsay Corporation (LNN - Free Report) is poised to gain from focus on margin expansion, development of technology products, business simplification and capital-allocation plan. The company’s Foundation for Growth initiative continues to drive margins in the Irrigation and Infrastructure segment. Further, the infrastructure business continues to fuel growth on strong order activity for the Road Zipper projects and robust demand for transportation safety products. However, the pandemic’s impact is likely to weigh on Lindsay’s revenues in the near term.

Lindsay currently carries a Zacks Rank #3 (Hold). It has a VGM Score of B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3, offer the best investment opportunities for investors.

Lindsay’s shares have gained 2.4% over the past year, compared with the industry’s rally of 26.4%.

Better-Than-Expected Q3 Earnings

On Jul 2, 2020, Lindsay reported third-quarter fiscal 2020 wherein adjusted net earnings of 93 cents surged 86% year over year, primarily driven by the company’s Foundation for Growth initiative. The figure also beat the Zacks Consensus Estimate of 80 cents.

Positive Earnings Surprise History

Lindsay has an impressive earnings surprise history. It beat estimates earnings in each of the trailing four quarters, the average surprise being 24.4%.

Positive Earnings Growth Projections

The Zacks Consensus Estimate for earnings for fiscal 2020 is currently pegged at $3.25, indicating an improvement of 124% from the prior-year reported figure. Over the past 90 days, the consensus mark has moved north by 7%.

Superior Return on Assets

Lindsay currently has a Return on Assets (ROA) of 5.6%, higher than the industry’s 3.7%. An above-average ROA denotes that the company is generating earnings by effectively managing its assets.

Growth Drivers in Place

The company is focused on simplifying business, in order to improve productivity. In sync with this, Lindsay’s Foundation for Growth initiative, launched in 2018, continues to progress and is bringing positive changes. A key financial objective of the initiative is to achieve an operating margin performance between 11% and 12% by fiscal 2020. The inititove is focused on four primary areas — optimization of manufacturing footprint, lowering G&A expenses, improving commercial excellence and global sourcing. The Foundation for Growth initiative is anticipated to improve the overall net earnings of the company in the months ahead.

The infrastructure business is poised to grow on the Highways England project and the fulfillment of a large order in Japan in the ongoing quarter. Further, momentum in Road Zipper Systems will contribute to the segment’s results. Lindsay’s Road Zipper System is a highly differentiated product that positively addresses key infrastructure needs including reducing congestion, lowering carbon emission and increasing driver safety, and thus, has been gaining popularity globally. Demand for the company’s transportation safety products continues to gain traction on the population growth and the need for improved road safety. Lindsay continues to focus on growing this business.

The company’s capital-allocation plan is to continue investing in revenues and earnings growth, while enhancing shareholder returns. Lindsay’s balance-sheet strength and ample liquidity will help it navigate through the coronavirus-induced uncertainty.

Headwinds to Counter

The final impact of the coronavirus pandemic on the company’s results remains uncertain at this time. Several factors that might affect commodity prices and farm income, including this year’s crop results, export demand related to the U.S.-China Phase 1 trade agreement, and the level of government support payments to assist farmers are likely to weigh on demand for the company’s products in fiscal 2021.

Bottom Line

Investors might want to hold on to the stock, at present, as it has ample prospects for outperforming peers in the near future.

Stocks to Consider

Some better-ranked stocks in the Industrial Products sector include Astec Industries, Inc. (ASTE - Free Report) , Silgan Holdings, Inc. (SLGN - Free Report) , and SiteOne Landscape Supply, Inc. (SITE - Free Report) . While Astec sports a Zacks Rank #1, Silgan and SiteOne carries a Zacks Rank of 2, currently. You can see the complete list of today's Zacks #1 Rank stocks here.

Astec has an estimated earnings growth rate of 13.5% for the ongoing year. The company’s shares have rallied 68.5% in a year’s time.

Silgan has a projected earnings growth rate of 28.7% for 2020. The company’s shares have appreciated 32.9% over the past year.

SiteOne Landscape has an expected earnings growth rate of 15.4% for the current year. The stock has surged 61.6% over the past year.

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