On Jul 9, we issued an updated research report on Lindsay Corporation (LNN - Free Report) . The company is poised to gain from its focus on growth objectives, business simplification and growth of technology products. However, dismal agricultural market in North America, elevated costs and tariffs on steel prices might thwart the company’s growth in the near future.
Let’s illustrate the factors in detail.
Lindsay to Gain from Focus on Growth Objectives
Lindsay is expected to benefit from its focus on growth objectives, which includes setting strategic direction, defining priorities and improving the overall operating performance. A key financial objective is to achieve operating margin performance between 11% and 12% in fiscal 2020.
Business Simplification to Drive Growth
Lindsay remains focused to simplify its business in order to improve productivity. During third-quarter fiscal 2018, it completed a portfolio review of business investments and announced its plan to divest the pump and filtration businesses, as well as a company-owned irrigation dealership. Lindsay also intends to divest the business and all associated assets, including the manufacturing plants for Watertronics and LAKOS. In addition, it will close the Crown Point manufacturing plant in the Omaha area in late fiscal 2018. These actions will simplify the company’s operations and support internal evaluation process.
Expansion of Technology Products
Lindsay anticipates its irrigation operating margin performance in the United States to benefit from the strength and growth of technology products. In line with this, the company rolled out FieldNET Advisor — an irrigation management solution — in April 2017. FieldNET Advisor enables growers to maximize profitability through better irrigation management.
The company remains focused toward its strategy to expand global reach with FieldNET Advisor. In the last quarter, Lindsay announced an agreement with John Deere. The company recently announced a collaboration agreement with Farmers Edge to strengthen its capability in the irrigation scheduling space.
Tough Agricultural Market a Concern
Lindsay expects the North American agricultural market conditions to remain challenged due to lower commodity prices and farm income. As of February 2018, the United States Department of Agriculture (USDA) estimated net farm income to decline around 7% in 2018 from 2017. The company expects commodity prices to remain constrained following record harvests in fiscal 2016 and fiscal 2017, in the nation, as well as due to high stock levels.
Also, China has begun levying retaliatory tariffs on U.S. agricultural exports, particularly soybeans, sorghum, and live hogs. This would hurt farmers further and impact demand for irrigation equipment.
Escalating Expenses to Hurt Earnings
Lindsay will bear the brunt of elevated costs incurred in connection with its Foundation for Growth performance improvement initiative. Its fiscal third-quarter results include pretax costs of $7.6 million, comprising severance costs and professional consulting fees incurred in connection with this initiative. Additional costs are anticipated in connection with this initiative over each of the next several quarters which will dampen the company’s earnings.
Steel Tariff Remains a Threat
Lindsay uses steel as a major raw material to manufacture products. Therefore, steel surcharges remain a risk. The imposition of the 25% tariff on steel imports will dent its performance.
Share Price Performance
Lindsay has outperformed its industry with respect to price performance over the past year. The stock has gained 13%, while the industry has recorded growth of 6% during the same time frame.
Zacks Rank & Stocks to Consider
Lindsay currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the sector include Actuant Corporation (ATU - Free Report) , DMC Global Inc. (BOOM - Free Report) and Chart Industries, Inc. (GTLS - Free Report) . All of these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Actuant has a long-term earnings growth rate of 15.6%. Its shares have rallied 17% over the past year.
DMC Global has a long-term earnings growth rate of 20%. The company’s shares have appreciated 269% in the past year.
Chart Industries has a long-term earnings growth rate of 26.9%. The stock has surged 83% in a year’s time.
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