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The Zacks Manufacturing - Farm Equipment industry will benefit from upbeat commodity prices, which in turn will boost farm income and lead to higher spending on agricultural equipment. However, ongoing supply chain disruptions and inflationary costs remain near-term concerns.
The industry remains focused on revolutionizing agriculture with technology to make farming automated, easy to execute and more precise across the production process. Players like Deere & Company, AGCO Corp., Lindsay Corp. and Titan International, Inc. are well-poised to gain on their investment in technologies, strong demand and cost-control efforts.
Industry Description
The Zacks Manufacturing - Farm Equipment industry comprises companies that manufacture agricultural equipment. These include tractors, combines, cotton pickers, harvesting equipment; tillage, seeding and application equipment, consisting of sprayers, nutrient management and soil preparation machinery; hay and forage equipment, comprising self-propelled forage harvesters and attachments, balers and mowers.
Some of these companies produce turf and utility equipment, consisting of riding lawn equipment and walk-behind mowers, golf course equipment, utility vehicles, commercial mowing equipment, and garden tillers and snow throwers. Some participants also manufacture irrigation equipment. The industry players sell their equipment and related parts through independent retail dealer networks and retail outlets. This industry caters to agriculture, golf and landscape markets.
Trends Shaping the Future of the Manufacturing - Farm Equipment Industry
Improving Commodity Prices: Corn and soybean are the most important grains for cash crop farming in the United States. Corn prices recently hit the peak of $8.30 a bushel and are currently trading at around $8 a bushel. Planting delays in parts of the US Midwest and persistent shipment disruptions due to Russia's invasion of Ukraine have been supporting prices.
Soybean also hit a record $17.5 per bushel in late April. Prices are being spurred by prospects of solid demand for U.S. supplies and tight global supplies amid adverse weather conditions in South America and ongoing shipment disruptions from the Black Sea region. High commodity prices will drive farm income and persuade farmers to continue spending on agricultural equipment. Apart from this, the need to replace ageing equipment will sustain demand.
High Costs & Supply Chain Issues Remain Woes: The COVID-19 pandemic had affected U.S. agricultural exports and impacted commodity prices. Even though commodity prices have been gaining lately, renewed coronavirus-induced lockdowns in China have fueled concerns of weakening demand that might impact prices again. Farmers will again adopt a cautious stance regarding their spending on equipment, which will hurt the industry's top-line performance.
The industry participants are currently facing raw material cost inflation, particularly steel, as well as increased transportation costs. Constraints on the availability of raw materials, labor and trucking resources have led to higher lead times for deliveries. Shortage of labor might impact their production levels and impair their ability to meet demand.
Consequently, the industry players are making every effort to bolster their financial condition, conserve cash and improve profitability. The companies have been implementing cost-reduction actions, which are likely to help sustain margins amid the current scenario.
Advancement in Latest Technology: Customers are increasingly relying on advanced technology, smart farming solutions and mechanization to run their operations. Thus, the industry participants are enhancing investments in launching products equipped with advanced technologies and features to keep up with the evolving demands of customers.
Initiatives to expand in precision agriculture technology will be a game-changer for the industry players, given its productivity-enhancing and sustainability benefits. Demand continues to grow for popular features, which include automatic guide machines in the field and equipment that plants seeds and applies chemicals and fertilizers with exceptional accuracy. Over the long term, rising population and elevated global demand for food and efficient water use will fuel demand for the industry's equipment.
Zacks Industry Rank Indicates Weak Prospects
The Zacks Manufacturing - Farm Equipment industry is part of the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #168, which places it at the bottom 34% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dim prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Despite the bleak near-term prospects of the industry, we will present a few Manufacturing - Farm Equipment stocks that can be retained in one's portfolio. It's worth taking a look at the industry's stock-market performance and valuation picture before that.
Industry Lags Sector and S&P 500
The Zacks Manufacturing - Farm Equipment industry has underperformed its own sector and the Zacks S&P 500 composite over the past 12 months. Stocks in this industry have fallen 15.6% in the past 12 months compared with the Zacks Industrial Products sector and the S&P 500's declines of 2.3%. and 0.8%, respectively.
Industry's Current Valuation
On the basis of the forward 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing farm equipment stocks, we see that the industry is currently trading at 13.53X compared with the S&P 500's 14.09X. The Industrial Products sector's forward 12-month EV/EBITDA is 16.91X.
Over the last five years, the industry has traded as high as 24.75X and as low as 10.43X, with the median being at 15.62X.
4 Manufacturing - Farm Equipment Stocks to Keep an Eye On
Deere: The company will continue to benefit from its focus on launching products with advanced technologies and features that provide it with a competitive edge. Efforts to expand in precision agriculture will be a significant growth driver. Deere, being the world's largest producer of agricultural equipment, is well-poised to benefit from the improving agricultural commodity prices. Replacement demand triggered by the need to upgrade old equipment will continue to support its revenues.
Considering that it also makes construction equipment, it will benefit from strong demand in the residential and non-residential construction markets as well. Its cost-control actions will drive margins. Backed by upbeat demand in its end-markets, its shares have appreciated 6.5% in the past three months.
The Zacks Consensus Estimate for the Moline, IL-based company's fiscal 2022 earnings is currently pegged at $22.69. The estimate has moved up 2% over the past 90 days and indicates growth of around 19.5% year over year. It has a trailing four-quarter earnings surprise of 20.6%, on average. Deere has an estimated long-term earnings growth rate of 13.5%. DE currently carries a Zacks Rank #3 (Hold).
AGCO: The company has been gaining on improved farm dynamics and increasing replacement demand for old equipment. AGCO continues to invest in products, precision farming technology and smart farming solutions to improve distribution and enhance digital capabilities in order to drive margins and strengthen product offerings. These efforts, along with favorable market demand and its cost-control efforts, have driven margin expansion across all regions over the past few quarters. The stock has gained 17.5% in the past three months.
The Zacks Consensus Estimate for the company's fiscal 2022 earnings currently stands at $11.83 and suggests growth of 13% year over year. The estimate has moved north by 12.6% in the past 90 days. This Duluth, GA-based leading manufacturer and distributor of agricultural equipment and related replacement parts currently carries a Zacks Rank of 3. AGCO has a trailing four-quarter earnings surprise of 43.4%, on average. The company has an estimated long-term earnings growth rate of 9.9%.
Lindsay: Improving agricultural commodity prices will continue to boost farm income, fueling demand for the company's irrigation equipment. This momentum, along with increased concerns around food security, will drive growth in the company's international markets. Lindsay is benefiting from increased selling prices and higher unit sales volumes in most international irrigation markets.
The company's infrastructure business is positioned to grow on strong momentum in Road Zipper System in the days ahead. The business is well-poised for growth, in the long run, backed by strong demand for transportation safety products and higher infrastructure spending. A strong balance sheet, focus on introducing technologically advanced products, and acquisitions will drive growth. Shares of the company have increased 11.8% over the past three months.
The Zacks Consensus Estimate for Lindsay's earnings for fiscal 2022 is currently pegged at $4.64, suggesting year-over-year growth of 12.4%. The estimates have moved north by 2.4% in the past 90 days. The company has a trailing four-quarter earnings surprise of 22.3%, on average. The company carries a Zacks Rank #3.
Titan International: Both of the company's agriculture and earthmoving construction segments have been witnessing strong sales volume growth over the past few quarters. Farm commodity prices and the necessity to replace old equipment will continue to support improved order levels for the agricultural segment.
The earthmoving and construction end-markets look promising as the undercarriage business sustains a strong momentum with increased infrastructure and ramping construction activities acting as key catalysts. Backed by this traction, the company's shares have soared 73% in the past three months. The company's continued cost reduction and cash preservation measures position it well for growth.
The Zacks Consensus Estimate for the company's earnings for fiscal 2022 has been revised upward by 23.4% over the past 90 days to $1.16 per share. The consensus mark suggests a year-over-year improvement of 36.5%. It has a trailing four-quarter earnings surprise of 56.4%, on average. TWI currently carries a Zacks Rank #3.
Why Haven't You Looked at Zacks' Top Stocks?
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Deere, AGCO, Lindsay and Titan International
For Immediate Release
Chicago, IL – May 6, 2022 – Today, Zacks Equity Research discusses Deere & Company (DE - Free Report) , AGCO Corp. (AGCO - Free Report) , Lindsay Corp. (LNN - Free Report) and Titan International, Inc. .
Industry: Farm Equipment
Link: https://www.zacks.com/commentary/1916873/4-farm-equipment-stocks-to-watch-amid-industry-challenges
The Zacks Manufacturing - Farm Equipment industry will benefit from upbeat commodity prices, which in turn will boost farm income and lead to higher spending on agricultural equipment. However, ongoing supply chain disruptions and inflationary costs remain near-term concerns.
The industry remains focused on revolutionizing agriculture with technology to make farming automated, easy to execute and more precise across the production process. Players like Deere & Company, AGCO Corp., Lindsay Corp. and Titan International, Inc. are well-poised to gain on their investment in technologies, strong demand and cost-control efforts.
Industry Description
The Zacks Manufacturing - Farm Equipment industry comprises companies that manufacture agricultural equipment. These include tractors, combines, cotton pickers, harvesting equipment; tillage, seeding and application equipment, consisting of sprayers, nutrient management and soil preparation machinery; hay and forage equipment, comprising self-propelled forage harvesters and attachments, balers and mowers.
Some of these companies produce turf and utility equipment, consisting of riding lawn equipment and walk-behind mowers, golf course equipment, utility vehicles, commercial mowing equipment, and garden tillers and snow throwers. Some participants also manufacture irrigation equipment. The industry players sell their equipment and related parts through independent retail dealer networks and retail outlets. This industry caters to agriculture, golf and landscape markets.
Trends Shaping the Future of the Manufacturing - Farm Equipment Industry
Improving Commodity Prices: Corn and soybean are the most important grains for cash crop farming in the United States. Corn prices recently hit the peak of $8.30 a bushel and are currently trading at around $8 a bushel. Planting delays in parts of the US Midwest and persistent shipment disruptions due to Russia's invasion of Ukraine have been supporting prices.
Soybean also hit a record $17.5 per bushel in late April. Prices are being spurred by prospects of solid demand for U.S. supplies and tight global supplies amid adverse weather conditions in South America and ongoing shipment disruptions from the Black Sea region. High commodity prices will drive farm income and persuade farmers to continue spending on agricultural equipment. Apart from this, the need to replace ageing equipment will sustain demand.
High Costs & Supply Chain Issues Remain Woes: The COVID-19 pandemic had affected U.S. agricultural exports and impacted commodity prices. Even though commodity prices have been gaining lately, renewed coronavirus-induced lockdowns in China have fueled concerns of weakening demand that might impact prices again. Farmers will again adopt a cautious stance regarding their spending on equipment, which will hurt the industry's top-line performance.
The industry participants are currently facing raw material cost inflation, particularly steel, as well as increased transportation costs. Constraints on the availability of raw materials, labor and trucking resources have led to higher lead times for deliveries. Shortage of labor might impact their production levels and impair their ability to meet demand.
Consequently, the industry players are making every effort to bolster their financial condition, conserve cash and improve profitability. The companies have been implementing cost-reduction actions, which are likely to help sustain margins amid the current scenario.
Advancement in Latest Technology: Customers are increasingly relying on advanced technology, smart farming solutions and mechanization to run their operations. Thus, the industry participants are enhancing investments in launching products equipped with advanced technologies and features to keep up with the evolving demands of customers.
Initiatives to expand in precision agriculture technology will be a game-changer for the industry players, given its productivity-enhancing and sustainability benefits. Demand continues to grow for popular features, which include automatic guide machines in the field and equipment that plants seeds and applies chemicals and fertilizers with exceptional accuracy. Over the long term, rising population and elevated global demand for food and efficient water use will fuel demand for the industry's equipment.
Zacks Industry Rank Indicates Weak Prospects
The Zacks Manufacturing - Farm Equipment industry is part of the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #168, which places it at the bottom 34% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dim prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Despite the bleak near-term prospects of the industry, we will present a few Manufacturing - Farm Equipment stocks that can be retained in one's portfolio. It's worth taking a look at the industry's stock-market performance and valuation picture before that.
Industry Lags Sector and S&P 500
The Zacks Manufacturing - Farm Equipment industry has underperformed its own sector and the Zacks S&P 500 composite over the past 12 months. Stocks in this industry have fallen 15.6% in the past 12 months compared with the Zacks Industrial Products sector and the S&P 500's declines of 2.3%. and 0.8%, respectively.
Industry's Current Valuation
On the basis of the forward 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing farm equipment stocks, we see that the industry is currently trading at 13.53X compared with the S&P 500's 14.09X. The Industrial Products sector's forward 12-month EV/EBITDA is 16.91X.
Over the last five years, the industry has traded as high as 24.75X and as low as 10.43X, with the median being at 15.62X.
4 Manufacturing - Farm Equipment Stocks to Keep an Eye On
Deere: The company will continue to benefit from its focus on launching products with advanced technologies and features that provide it with a competitive edge. Efforts to expand in precision agriculture will be a significant growth driver. Deere, being the world's largest producer of agricultural equipment, is well-poised to benefit from the improving agricultural commodity prices. Replacement demand triggered by the need to upgrade old equipment will continue to support its revenues.
Considering that it also makes construction equipment, it will benefit from strong demand in the residential and non-residential construction markets as well. Its cost-control actions will drive margins. Backed by upbeat demand in its end-markets, its shares have appreciated 6.5% in the past three months.
The Zacks Consensus Estimate for the Moline, IL-based company's fiscal 2022 earnings is currently pegged at $22.69. The estimate has moved up 2% over the past 90 days and indicates growth of around 19.5% year over year. It has a trailing four-quarter earnings surprise of 20.6%, on average. Deere has an estimated long-term earnings growth rate of 13.5%. DE currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
AGCO: The company has been gaining on improved farm dynamics and increasing replacement demand for old equipment. AGCO continues to invest in products, precision farming technology and smart farming solutions to improve distribution and enhance digital capabilities in order to drive margins and strengthen product offerings. These efforts, along with favorable market demand and its cost-control efforts, have driven margin expansion across all regions over the past few quarters. The stock has gained 17.5% in the past three months.
The Zacks Consensus Estimate for the company's fiscal 2022 earnings currently stands at $11.83 and suggests growth of 13% year over year. The estimate has moved north by 12.6% in the past 90 days. This Duluth, GA-based leading manufacturer and distributor of agricultural equipment and related replacement parts currently carries a Zacks Rank of 3. AGCO has a trailing four-quarter earnings surprise of 43.4%, on average. The company has an estimated long-term earnings growth rate of 9.9%.
Lindsay: Improving agricultural commodity prices will continue to boost farm income, fueling demand for the company's irrigation equipment. This momentum, along with increased concerns around food security, will drive growth in the company's international markets. Lindsay is benefiting from increased selling prices and higher unit sales volumes in most international irrigation markets.
The company's infrastructure business is positioned to grow on strong momentum in Road Zipper System in the days ahead. The business is well-poised for growth, in the long run, backed by strong demand for transportation safety products and higher infrastructure spending. A strong balance sheet, focus on introducing technologically advanced products, and acquisitions will drive growth. Shares of the company have increased 11.8% over the past three months.
The Zacks Consensus Estimate for Lindsay's earnings for fiscal 2022 is currently pegged at $4.64, suggesting year-over-year growth of 12.4%. The estimates have moved north by 2.4% in the past 90 days. The company has a trailing four-quarter earnings surprise of 22.3%, on average. The company carries a Zacks Rank #3.
Titan International: Both of the company's agriculture and earthmoving construction segments have been witnessing strong sales volume growth over the past few quarters. Farm commodity prices and the necessity to replace old equipment will continue to support improved order levels for the agricultural segment.
The earthmoving and construction end-markets look promising as the undercarriage business sustains a strong momentum with increased infrastructure and ramping construction activities acting as key catalysts. Backed by this traction, the company's shares have soared 73% in the past three months. The company's continued cost reduction and cash preservation measures position it well for growth.
The Zacks Consensus Estimate for the company's earnings for fiscal 2022 has been revised upward by 23.4% over the past 90 days to $1.16 per share. The consensus mark suggests a year-over-year improvement of 36.5%. It has a trailing four-quarter earnings surprise of 56.4%, on average. TWI currently carries a Zacks Rank #3.
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.