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Lindsay (LNN) Poised to Grow on Highway Bill, Risks Remain

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On Aug 31, we issued an updated research report on Lindsay Corporation (LNN - Free Report) .

The company is set to benefit from the five-year Highway Bill, acquisitions, capital allocation plan and focus on investments in product development. However, reduced farm incomes and pricing pressure remain challenges.

Notably, Lindsay continues to recognize benefits from the water-related acquisitions completed over the past few years. These acquisitions have helped the company boost its gross margins, provided incremental revenue and profits from non-agricultural markets, and offered platforms for future growth.

Lindsay’s order backlog increased to $61.2 million as of May 31, 2016 from $53.2 million as of May 31, 2015. The company expects increased interest in the Road Zipper system to benefit infrastructure revenues, going forward. Further, the recent passage of the five-year Highway Bill bodes well for sales growth of road safety products and Road Zipper systems over the next two years and beyond. This is because it provides states with more funding, visibility and certainty regarding planned projects.

Lindsay’s capital-allocation plan includes continuous investment in revenue and earnings growth, together with a defined process for enhancing returns to stockholders. The company expects its balance sheet to support additional growth through acquisitions and other initiatives, and drive improved returns for shareholders.

However, Lindsay’s earnings continue to bear the brunt of weak demand in the U.S. Lower commodity prices and reduced farm income have been affecting farmer sentiments regarding capital goods purchases. The USDA’s current projection for 2016 net farm income is $71.5 billion, down 11.5% from the prior year. Hence, Lindsay’s results will continue to be affected.

Also, Brazil remains a near-term challenge, with slow FINAME funding for equipment purchases and significant government turmoil.

In addition, a more competitive pricing environment, both in the U.S. and international markets, may affect Lindsay’s margins in the near term.

Lindsay currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the same sector are Astec Industries, Inc. (ASTE - Free Report) , Berry Plastics Group, Inc. (BERY - Free Report) and DXP Enterprises, Inc. (DXPE - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy).

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