Stock Analysis & Ideas

AGCO: Solid Fundamentals, Prospects Outweigh Near-Term Concerns

Story Highlights

AGCO Corporation seems to have all the necessary ingredients to keep investors interested in its stock. The company’s solid growth history, evident from an increase of 3.6% CAGR in revenues in the last five years, and bright prospects outshine any near-term hurdles.

Fundamentals of the agriculture farm equipment industry are strong and any investor willing to capitalize on this strength could consider Duluth, GA-based AGCO Corporation (NYSE: AGCO) as an attractive investment option. Now, let’s learn more about this technologically advanced farm equipment maker, which projects solid growth prospects despite near-term headwinds.

In the last five years, revenues of this $7.1 billion company have increased by 3.6% CAGR, and earnings per share have advanced by 21.7% CAGR. The company’s growth story is reflected in its price performance, with shares up 40.7% in the past five years.

The equipment maker has a Moderate Buy consensus rating based on three Buys and two Holds. Also, AGCO’s average price forecast of $145.17 reflects upside potential of 46.77% from the current level.

Factors Influencing AGCO

The demand for high precision and technologically advanced equipment in crop farming has grown considerably over the years. Such equipment not only eases farming operations but also helps in improving crop yield and net farm income.

For the industry, AGCO anticipates a nearly 5-10% increase in the retail sale of tractors in North America in 2022. Tractor sales are also forecast to grow 5-10% in South America and 0-5% in Western Europe.

With solid product offerings and technological expertise, AGCO seems to be well-positioned to leverage the high demand for farm equipment and systems. In the first quarter of 2022, revenues from tractors increased 17.4% year-over-year, while revenues from grain storage and protein production systems advanced 12%.

Also, AGCO’s innovation capabilities and synergistic benefits from acquired assets add to its appeal. In 2022, the company forecasts high demand, effective pricing, and market share gains to drive its top-line results. Revenues are anticipated to be within the $12.5-$12.7 billion range. Earnings are forecast to be $11.70-$11.90 per share, primarily driven by higher sales and improvement in gross and operating margins.

On the flip side, supply-chain issues (impact aggravated by the Ukraine-Russia war), and cost-inflation in logistics and raw materials remain a concern for AGCO. The company is dealing with these headwinds through effective pricing and by improving its operational efficiencies.

Positively Skewed Opinions on the Stock

Two days ago, Stephen Volkmann of Jefferies reiterated a Buy rating on AGCO with a price target of $170, reflecting upside potential of 78.57% from the current level.

Another analyst, Kristen Owen of Oppenheimer maintained a Buy rating on AGCO while lowering the price target to $156 (63.87% upside potential) from $169.

Also, financial bloggers tracked by TipRanks are 100% Bullish on AGCO, compared with the sector average of 68%.

Bright Future Ahead

The fundamentals of this deep-rooted company in the farm equipment market are strong enough to deal with near-term hiccups. For the second quarter of 2022, the consensus estimate for AGCO’s earnings is $2.40 per share. An upbeat performance is quite likely, especially considering the company’s past performance and prospects for the future.

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