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AGCO Corp Shares Up 42% in a Year: What's Driving the Rally?

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Shares of AGCO Corporation (AGCO - Free Report) have surged 42.1% over the past year, aided by its forecast-topping earnings performance in third-quarter 2019, and an encouraging outlook. The company is likely to benefit from margin improvement, focus on strategic investments and capital-allocation plan.

AGCO, a Zacks Rank #3 (Hold) stock, has a market cap of roughly $5.83 billion and average volume of shares traded in the last three months was around 441K. The company has an expected long-term earnings per share growth rate of 12.8% — higher than the industry average of 8%.

The company outpaced the Zacks Consensus Estimate in all of the trailing four quarters, the average positive earnings surprise being 32.7%. The stock’s 42.1% rise over the past year has outperformed the industry’s growth of 20.9%, the sector’s rise of 26.9% and the S&P 500’s rally of 30.7%.

Let’s delve deeper and analyze the reasons behind the company’s impressive price performance and find out if there is room for further appreciation:

Earnings Beat Consensus Estimate in Q3: AGCO’s third-quarter 2019 adjusted earnings per share of 82 cents surpassed the Zacks Consensus Estimate of 78 cents. The company gained from its price-realization initiatives, improved productivity and focus on margin expansion amid sluggish farming conditions in major markets during the quarter.

Upbeat Outlook:  AGCO anticipates improved gross and operating margins, backed by positive impact of pricing and benefits from cost-reduction initiatives. These positives are likely to offset the adverse impact of foreign-currency translation and relatively flat sale volumes. Furthermore, the company is likely to witness growth in its grain and protein business, driven by expectations of an increase in population and higher protein consumption.

Positive Growth Projections: For 2020, the Zacks Consensus Estimate for earnings is currently pegged at $5.29, indicating year-over-year growth of 4.5%.
Growth Drivers

AGCO is consistently making strategic investments to enhance and expand its product lines, upgrade system capabilities and improve factory productivity. The company intends to increase the investment level, in a bid to execute its product-development plan and meet the latest emission requirements in Brazil and Europe.

AGCO has completed two acquisitions in the past two years. In September 2017, it acquired Precision Planting — a leader in innovative planting technology. Later in October that year, AGCO purchased the forage division of Lely Group, which significantly boosted its hay and forage product line in Europe, fueling growth in this market.

The company is focused on its long-term capital-allocation plan by returning cash to shareholders. Over the past six years, the company executed share repurchases of $1.3 billion, which reduced share count by more than 25%. In the first nine months of 2019, it has repurchased shares worth $100 million. The company also projects to generate free cash flow of $275-$300 million for 2019.

Stocks to Consider

Some better-ranked stocks in the Industrial Products sector are CIRCOR International, Inc. CIR, Chart Industries, Inc. GTLS and DXP Enterprises, Inc. DXPE. While CIRCOR International sports a Zacks Rank #1 (Strong Buy), Chart Industries and DXP Enterprises carry a Zacks Rank #2 (Buy), at present. You can see the complete list of today's Zacks #1 Rank stocks here.

CIRCOR International has an expected earnings growth rate of 59.3% for the current year. The stock has surged 114.2% over the past year.

Chart Industries has a projected earnings growth rate of 73.6% for 2020. The company’s shares have gained 6% in the past year.

DXP Enterprises has an estimated earnings growth rate of 10.5% for the ongoing year. In a year’s time, the stock has appreciated 37.3%.

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