Lindsay Corporation (LNN) is well-poised to gain on improving agricultural commodity prices that will lead to higher demand for irrigation equipment. However, inflated costs and supply chain issues, which are currently ravaging the industry, are expected to hurt the near-term results. The company’s infrastructure business is positioned well for the long run, courtesy of strong demand for transportation safety products and higher infrastructure spending. A strong balance sheet, focus on introducing technologically advanced products, and investment in organic growth and acquisitions will drive growth for the company.

Irrigation Demand Holds Promise

Corn and soybeans are the most important grains for cash crop farming in the United States. After a solid gain of 23% in 2021, corn price is currently at a 10-month high of $7.6 a bushel as Russia's invasion of Ukraine has limited supplies from two of the world's biggest exporting regions. Soybean is at $17 per bushel — at the strongest level since September 2012, supported by the Russia-Ukraine crisis. Also, dry conditions in Argentina and southern Brazil have been fueling soybean prices.

Rising commodity prices will drive farm income and persuade farmers to continue spending on agricultural equipment. This, in turn, will drive Lindsay’s top line.

Infrastructure Business Poised to Grow

Lower Road Zipper System sales have been weighing on the infrastructure segment revenues since last year as the timing of certain projects was impacted by coronavirus-related delays. However, the company anticipates an increase in project activity in the second half of fiscal 2022.

Nevertheless, in the long run, Lindsay’s Road Zipper System is expected to be a key catalyst for the segment. It is a highly differentiated product that positively addresses key infrastructure needs such as reducing congestion, lowering carbon emission, and increasing driver safety, which has led to its global popularity.

Demand for the company’s transportation safety products is highly dependent on government spending for road construction. The signing of the Infrastructure Investment and Jobs Act (IIJA) into law will act as a tailwind for the infrastructure business.

Investment in Technology to Provide Competitive Edge

Focus on bringing technologically advanced products to the market will fuel Lindsay’s top line. The buyout of Net Irrigate, LLC in 2020 strengthened Lindsay’s market position in remote monitoring capabilities. The company has been witnessing strong growth in technology penetration, which will drive performance in the days ahead. The company anticipated new product revenues as a percentage of total revenues to go up from 2% in fiscal 2017 to 15% in 2023.

A Solid Balance Sheet

Backed by a strong balance sheet, Lindsay continues to invest in organic growth, make synergistic acquisitions and enhance returns to stockholders. As of Nov 30, 2021, the company had available liquidity of $164.9 million, with $114.9 million in cash, cash equivalents and marketable securities and $50 million available under the revolving credit facility. The company’s total debt to capital ratio was 0.25 as of Nov 30, 2021 — much lower than the industry’s total debt to capital ratio of 0.74. The company's times interest earned ratio is 12.2, much better than the industry's 7.8.

Costs, Supply Chain Issues Linger

Lindsay has been witnessing a rapid increase in input costs, particularly of steel and zinc used in the production of its products. Transportation costs have gone up. Constraints on the availability of raw materials, labor and trucking resources have led to higher lead times for deliveries. The company continues to introduce appropriate sales price adjustments to combat cost inflation. However, competitive market pressures may affect its ability to pass price adjustments to its customers. These factors will impact margins in the short term.

Price Performance

Image Source: Zacks Investment Research

Lindsay’s shares have fallen 16.1% in the past year compared with the industry’s decline of 3.8%.

Zacks Rank & Stocks to Consider

At present, Lindsay carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector are Packaging Corporation of America (PKG Quick QuotePKG - Free Report) , Applied Industrial Technologies, Inc. (AIT Quick QuoteAIT - Free Report) and Dover Corporation (DOV Quick QuoteDOV - Free Report) . While PKG and AIT currently sport a Zacks Rank #1 (Strong Buy), DOV carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Packaging Corp’s fourth-quarter 2021 adjusted EPS soared 108% year over year to $2.76, beating the Zacks Consensus Estimate of $2.08. PKG has a trailing four-quarter earnings surprise of 22.8%, on average.

Packaging Corp has an estimated earnings growth rate of 11.5% for 2022. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 11.6%. PKG’s shares have gained around 9% in a year.

Applied Industrial Technologies reported adjusted EPS of $1.46 in second-quarter fiscal 2022 (ended Dec 31, 2020), up 49% year over year and beating the Zacks Consensus Estimate of $1.09. AIT has a trailing four-quarter earnings surprise of 27.9%, on average.

Applied Industrial Technologies has an expected earnings growth rate of 24.8% for fiscal 2022. The Zacks Consensus Estimate for fiscal 2022 earnings has moved up 9.4% in the past 60 days. AIT’s shares have appreciated 7% in a year.

Dover’s fourth-quarter 2021 adjusted EPS increased 15% year over year to $1.78, beating the Zacks Consensus Estimate of $1.66. DOV has a trailing four-quarter earnings surprise of 12.3%, on average.

Dover has an estimated earnings growth rate of 12.7% for 2022. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 4%. DOV’s shares have rallied around 12% in a year.