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Lindsay Poised at Neutral

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We reiterate our Neutral recommendation on Lindsay Corporation (LNN - Free Report) , the leading maker of self-propelled center pivot and lateral move irrigation systems. Though the new Highway Bill will provide funds through 2014, leading to a ramp up in the infrastructural business, any delay in the highly capital intensive highway projects will negatively impact pricing.

Lindsay’s fourth-quarter fiscal 2012 earnings of 68 cents per share missed the Zacks Consensus Estimate of 76 cents. Total revenues improved 10% year over year to $127.8 million, but missed the Zacks Consensus Estimate of $129 million.

Demand for irrigation systems in the domestic as well as international markets will remain high as drought remains a hindrance to corn yield. As such, prices are expected to remain high moving ahead. As a result, high crop prices and current drought conditions will lead to sustained spending in irrigation equipment through 2013, benefiting Lindsay in the process.

Corn prices jumped 28% and soybean prices moved up 33% on a year over year basis in the fourth quarter, driven by drought. The United States Department of Agriculture increased its forecast of net farm income to a record $122.2 billion in 2012 and about 65% higher than a 10 year average, reflecting higher crop prices and crop insurance income.

The Architecture Billing Index of the American Institute of Architects indicates that non-residential construction activity for nine to twelve months rose 1.4 points to 51.6 in September, the fastest increase since late 2010. Any reading above 50 denotes an increase in demand for architect’s services.

Moreover, the new projects inquiry index was 57.3 in September, slightly up from 57.2 in August. In addition, the new Highway Bill will provide the funds through 2014, benefiting the infrastructural business of Lindsay.

However, one of the chief concerns for Lindsay is the price volatility for certain commodities like steel, which is used in manufacturing products. Steel comprises a third of Lindsay’s cost of goods sold and, therefore, has a significant impact on pricing.

Moreover, the highway projects are generally capital intensive and take considerable amount of time to start. Delay in highway projects is expected to endanger Quickchange Moveable Barrier (QMB) sales, leading to negligible infrastructure profitability.

Lindsay, which belongs to the farm and construction machinery industry, retains a Zacks #2 Rank (Buy). AGCO Corporation (AGCO - Free Report) and Deere & Company (DE - Free Report) both retain a Zacks #3 Rank (Hold) in the same industry.

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