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4 Farm Equipment Stocks to Watch in the Promising Industry
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The Zacks Manufacturing - Farm Equipment industry is set to benefit from upbeat commodity prices, which will boost farm income. This, in turn, will lead to higher spending on agricultural equipment, which should support the industry in the days ahead. The industry’s focus on revolutionizing agriculture with technology in an effort to make farming automated, easy to use and more precise across the production process is also likely to aid growth.
Players like Deere & Company (DE - Free Report) , AGCO Corporation (AGCO - Free Report) , Lindsay Corporation (LNN - Free Report) and Titan International, Inc. are well-poised to gain from cost-control efforts and their efforts to bring technologically advanced products to the market.
About the Industry
The Zacks Manufacturing - Farm Equipment industry comprises companies that manufacture agricultural equipment. These include tractors, combines, cotton pickers and harvesting equipment; tillage, seeding and application equipment, consisting of sprayers, nutrient management and soil preparation machinery; and hay and forage equipment, comprising self-propelled forage harvesters and attachments, balers, and mowers. Some of these companies produce turf and utility equipment, consisting of riding lawn equipment and walk-behind mowers, golf course equipment, utility vehicles, commercial mowing equipment, and garden tillers and snow throwers. Some participants manufacture irrigation equipment. The industry players sell their equipment and related parts through independent retail dealer networks and retail outlets. This industry caters to the agriculture, golf and landscape markets.
Trends Shaping the Future of the Manufacturing - Farm Equipment Industry
Growing Demand for Food to Sustain the Industry: The USDA (U.S. Department of Agriculture) projects net farm income at $136.9 billion for 2023, which is 15.9% lower than that reported in 2022. The decline is mainly due to elevated production expenses and lower direct government payments. Nevertheless, despite this decline, net farm income in 2023 will be 26.6% above the 20-year average (2002-2021) of $108.1 billion in inflation-adjusted dollars. This might impact the spending power of farmers. Upbeat commodity prices will support farm income. The need to replace aging equipment will sustain demand for the industry. The farm size has been on the rise in the United States, which calls for more laborers. Given the escalation in labor costs every year, farmers are resorting to farming equipment to replace labor. Demand for agricultural equipment will continue to be supported by increased global demand for food, both from population growth and an increasing proportion of the population aspiring for better living standards. The U.S. agricultural machinery market is projected to reach $52.73 billion by 2027, seeing a CAGR of 3.3% over 2021-2027.
Pricing Actions to Offset High Costs: Farmers have been witnessing higher production costs, particularly of fertilizers. This might impede their purchasing power if commodity prices decline. The industry is also facing raw material cost inflation, particularly steel, and increased transportation costs. Constraints on the availability of raw materials, labor and trucking resources have led to higher lead times for deliveries. Labor shortage might affect their production levels and impair their ability to meet demand. Consequently, the industry players are making every effort to bolster their financial condition, conserve cash and improve profitability. The companies have been implementing pricing and cost-reduction actions, which are likely to help sustain margins in the current scenario.
Technologically Advanced Products to Aid Growth: Customers are increasingly relying on advanced technology, smart farming solutions and mechanization to run their operations. Thus, the industry participants are enhancing investments in launching products equipped with advanced technologies and features to keep up with customers' evolving demands. Initiatives to advance precision agriculture technology will be a game-changer for the industry players, given its productivity-enhancing and sustainability benefits. Demand continues to grow for popular features, which include automatic guide machines in the field and equipment that plants seeds, and applies chemicals and fertilizers with exceptional accuracy. Over the long term, rising population and elevated global demand for food and efficient water use will fuel demand for the industry’s equipment.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Manufacturing - Farm Equipment industry is part of the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #34, which places it in the top 14% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright prospects for the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. The Manufacturing - Farm Equipment industry’s 2022 earnings estimates have improved 3% over the past year.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation.
Industry Outperforms Sector and S&P 500
The Zacks Manufacturing - Farm Equipment industry has outperformed its sector and the Zacks S&P 500 composite over the past 12 months. Stocks in this industry have gained 24.5% in the past 12 months against the S&P 500’s decline of 7%. The Industrial Products sector has gained 4.4% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing farm equipment stocks, we see that the industry is currently trading at 23.59X compared with the S&P 500’s 19.71X. The Industrial Products sector’s forward 12-month EV/EBITDA is 19.88X. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) Ratio (F12M)
Enterprise Value/EBITDA (EV/EBITDA) Ratio (F12M)
Over the last five years, the industry has traded as high as 26.92X and as low as 13.35X, with the median being at 11.72X.
4 Manufacturing - Farm Equipment Stocks to Keep an Eye on
AGCO: The company has been gaining from improved farm dynamics and increasing replacement demand for old equipment. AGCO continues to invest in products, precision farming technology and smart farming solutions to improve distribution and enhance digital capabilities to strengthen product offerings. These efforts, along with favorable market demand and the company’s cost-control measures, have driven margin expansion across all regions over the past few quarters. Backed by these tailwinds, the stock has gained 18% in the past year.
The Zacks Consensus Estimate for the company’s fiscal 2023 earnings is pegged at $13.41 and suggests year-over-year growth of 13.4%. The consensus mark has moved up 1.3% over the past 60 days. AGCO has a trailing four-quarter earnings surprise of 13.4%, on average. The company has an estimated long-term earnings growth rate of 10.6%. This Duluth, GA-based leading manufacturer and distributor of agricultural equipment and related replacement parts currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: AGCO
Deere: The company will continue to benefit from its focus on launching products equipped with advanced technologies and features that provide it with a competitive edge. Efforts to expand in precision agriculture will be a significant growth driver. Replacement demand, triggered by the need to upgrade old equipment, will continue to support its revenues. Considering that Deere also makes construction equipment, it will benefit from strong demand in the residential and non-residential construction markets. Its cost-control actions have been supporting margins despite the persistent inflationary pressures, leading to its 26% share price gain over the past year.
The Zacks Consensus Estimate for the Moline, IL-based company’s fiscal 2023 earnings has moved up 0.3% over the past 60 days and is pegged at $28.11. The estimate implies year-over-year growth of 20.8%. DE has a trailing four-quarter earnings surprise of 4.7%, on average. Deere has an estimated long-term earnings growth rate of 11.9% and currently carries a Zacks Rank #3 (Hold).
Price & Consensus: DE
Lindsay: Lindsay’s irrigation equipment is expected to benefit from higher agricultural commodity prices and favorable farm fundamentals. Increased concerns around food security will drive growth in the international irrigation markets. Lindsay is benefiting from increased selling prices and higher unit sales volumes in the United States. This has contributed to the 19.7% gain in its share price over the past year. The company’s infrastructure business is positioned to grow on strong momentum in Road Zipper System in the future. The business is well-poised for growth in the long run, backed by strong demand for transportation safety products and higher infrastructure spending. A strong balance sheet, and a focus on introducing technologically advanced products and acquisitions will aid the company’s growth.
The Zacks Consensus Estimate for the company’s earnings for fiscal 2023 is pegged at $6.95 per share, suggesting a year-over-year improvement of 9.5%. The estimate moved up 0.1% over the last 60 days. It has a trailing four-quarter earnings surprise of 18.8%, on average. LNN currently carries a Zacks Rank #3.
Price & Consensus: LNN
Titan International: The company’s agriculture and earthmoving construction segments have been witnessing strong sales volume growth over the past few quarters, which has been instrumental in its share price gain of 43% in the past year. Farm commodity prices and the necessity to replace old equipment continue to support improved order levels for the agricultural segment. The earthmoving and construction end markets look promising, with increased infrastructure, an upbeat mining sector and ramped-up construction activities acting as the key catalysts. The segment’s margins have been reflecting improved production efficiencies stemming from management actions taken to improve profitability for the long term. Its continued cost reduction and cash preservation measures position it well for growth.
The Zacks Consensus Estimate for the company’s earnings for fiscal 2023 is pegged at $2.34 per share, suggesting a year-over-year improvement of 5.6%. It has a trailing four-quarter earnings surprise of 49.6%, on average. TWI currently carries a Zacks Rank #3.
Price & Consensus: TWI
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4 Farm Equipment Stocks to Watch in the Promising Industry
The Zacks Manufacturing - Farm Equipment industry is set to benefit from upbeat commodity prices, which will boost farm income. This, in turn, will lead to higher spending on agricultural equipment, which should support the industry in the days ahead. The industry’s focus on revolutionizing agriculture with technology in an effort to make farming automated, easy to use and more precise across the production process is also likely to aid growth.
Players like Deere & Company (DE - Free Report) , AGCO Corporation (AGCO - Free Report) , Lindsay Corporation (LNN - Free Report) and Titan International, Inc. are well-poised to gain from cost-control efforts and their efforts to bring technologically advanced products to the market.
About the Industry
The Zacks Manufacturing - Farm Equipment industry comprises companies that manufacture agricultural equipment. These include tractors, combines, cotton pickers and harvesting equipment; tillage, seeding and application equipment, consisting of sprayers, nutrient management and soil preparation machinery; and hay and forage equipment, comprising self-propelled forage harvesters and attachments, balers, and mowers. Some of these companies produce turf and utility equipment, consisting of riding lawn equipment and walk-behind mowers, golf course equipment, utility vehicles, commercial mowing equipment, and garden tillers and snow throwers. Some participants manufacture irrigation equipment. The industry players sell their equipment and related parts through independent retail dealer networks and retail outlets. This industry caters to the agriculture, golf and landscape markets.
Trends Shaping the Future of the Manufacturing - Farm Equipment Industry
Growing Demand for Food to Sustain the Industry: The USDA (U.S. Department of Agriculture) projects net farm income at $136.9 billion for 2023, which is 15.9% lower than that reported in 2022. The decline is mainly due to elevated production expenses and lower direct government payments. Nevertheless, despite this decline, net farm income in 2023 will be 26.6% above the 20-year average (2002-2021) of $108.1 billion in inflation-adjusted dollars. This might impact the spending power of farmers. Upbeat commodity prices will support farm income. The need to replace aging equipment will sustain demand for the industry. The farm size has been on the rise in the United States, which calls for more laborers. Given the escalation in labor costs every year, farmers are resorting to farming equipment to replace labor. Demand for agricultural equipment will continue to be supported by increased global demand for food, both from population growth and an increasing proportion of the population aspiring for better living standards. The U.S. agricultural machinery market is projected to reach $52.73 billion by 2027, seeing a CAGR of 3.3% over 2021-2027.
Pricing Actions to Offset High Costs: Farmers have been witnessing higher production costs, particularly of fertilizers. This might impede their purchasing power if commodity prices decline. The industry is also facing raw material cost inflation, particularly steel, and increased transportation costs. Constraints on the availability of raw materials, labor and trucking resources have led to higher lead times for deliveries. Labor shortage might affect their production levels and impair their ability to meet demand. Consequently, the industry players are making every effort to bolster their financial condition, conserve cash and improve profitability. The companies have been implementing pricing and cost-reduction actions, which are likely to help sustain margins in the current scenario.
Technologically Advanced Products to Aid Growth: Customers are increasingly relying on advanced technology, smart farming solutions and mechanization to run their operations. Thus, the industry participants are enhancing investments in launching products equipped with advanced technologies and features to keep up with customers' evolving demands. Initiatives to advance precision agriculture technology will be a game-changer for the industry players, given its productivity-enhancing and sustainability benefits. Demand continues to grow for popular features, which include automatic guide machines in the field and equipment that plants seeds, and applies chemicals and fertilizers with exceptional accuracy. Over the long term, rising population and elevated global demand for food and efficient water use will fuel demand for the industry’s equipment.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Manufacturing - Farm Equipment industry is part of the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #34, which places it in the top 14% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright prospects for the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. The Manufacturing - Farm Equipment industry’s 2022 earnings estimates have improved 3% over the past year.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation.
Industry Outperforms Sector and S&P 500
The Zacks Manufacturing - Farm Equipment industry has outperformed its sector and the Zacks S&P 500 composite over the past 12 months. Stocks in this industry have gained 24.5% in the past 12 months against the S&P 500’s decline of 7%. The Industrial Products sector has gained 4.4% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing farm equipment stocks, we see that the industry is currently trading at 23.59X compared with the S&P 500’s 19.71X. The Industrial Products sector’s forward 12-month EV/EBITDA is 19.88X. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) Ratio (F12M)
Enterprise Value/EBITDA (EV/EBITDA) Ratio (F12M)
Over the last five years, the industry has traded as high as 26.92X and as low as 13.35X, with the median being at 11.72X.
4 Manufacturing - Farm Equipment Stocks to Keep an Eye on
AGCO: The company has been gaining from improved farm dynamics and increasing replacement demand for old equipment. AGCO continues to invest in products, precision farming technology and smart farming solutions to improve distribution and enhance digital capabilities to strengthen product offerings. These efforts, along with favorable market demand and the company’s cost-control measures, have driven margin expansion across all regions over the past few quarters. Backed by these tailwinds, the stock has gained 18% in the past year.
The Zacks Consensus Estimate for the company’s fiscal 2023 earnings is pegged at $13.41 and suggests year-over-year growth of 13.4%. The consensus mark has moved up 1.3% over the past 60 days. AGCO has a trailing four-quarter earnings surprise of 13.4%, on average. The company has an estimated long-term earnings growth rate of 10.6%. This Duluth, GA-based leading manufacturer and distributor of agricultural equipment and related replacement parts currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: AGCO
Deere: The company will continue to benefit from its focus on launching products equipped with advanced technologies and features that provide it with a competitive edge. Efforts to expand in precision agriculture will be a significant growth driver. Replacement demand, triggered by the need to upgrade old equipment, will continue to support its revenues. Considering that Deere also makes construction equipment, it will benefit from strong demand in the residential and non-residential construction markets. Its cost-control actions have been supporting margins despite the persistent inflationary pressures, leading to its 26% share price gain over the past year.
The Zacks Consensus Estimate for the Moline, IL-based company’s fiscal 2023 earnings has moved up 0.3% over the past 60 days and is pegged at $28.11. The estimate implies year-over-year growth of 20.8%. DE has a trailing four-quarter earnings surprise of 4.7%, on average. Deere has an estimated long-term earnings growth rate of 11.9% and currently carries a Zacks Rank #3 (Hold).
Price & Consensus: DE
Lindsay: Lindsay’s irrigation equipment is expected to benefit from higher agricultural commodity prices and favorable farm fundamentals. Increased concerns around food security will drive growth in the international irrigation markets. Lindsay is benefiting from increased selling prices and higher unit sales volumes in the United States. This has contributed to the 19.7% gain in its share price over the past year. The company’s infrastructure business is positioned to grow on strong momentum in Road Zipper System in the future. The business is well-poised for growth in the long run, backed by strong demand for transportation safety products and higher infrastructure spending. A strong balance sheet, and a focus on introducing technologically advanced products and acquisitions will aid the company’s growth.
The Zacks Consensus Estimate for the company’s earnings for fiscal 2023 is pegged at $6.95 per share, suggesting a year-over-year improvement of 9.5%. The estimate moved up 0.1% over the last 60 days. It has a trailing four-quarter earnings surprise of 18.8%, on average. LNN currently carries a Zacks Rank #3.
Price & Consensus: LNN
Titan International: The company’s agriculture and earthmoving construction segments have been witnessing strong sales volume growth over the past few quarters, which has been instrumental in its share price gain of 43% in the past year. Farm commodity prices and the necessity to replace old equipment continue to support improved order levels for the agricultural segment. The earthmoving and construction end markets look promising, with increased infrastructure, an upbeat mining sector and ramped-up construction activities acting as the key catalysts. The segment’s margins have been reflecting improved production efficiencies stemming from management actions taken to improve profitability for the long term. Its continued cost reduction and cash preservation measures position it well for growth.
The Zacks Consensus Estimate for the company’s earnings for fiscal 2023 is pegged at $2.34 per share, suggesting a year-over-year improvement of 5.6%. It has a trailing four-quarter earnings surprise of 49.6%, on average. TWI currently carries a Zacks Rank #3.
Price & Consensus: TWI