Buy This Agricultural Company!
Piyush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The markets globally have rallied significantly after making their lows in the current year. An investor might think that due to the rally, picking up undervalued stocks with great growth potential would be very difficult. Well yes, it is difficult these days to find undervalued stocks, but it’s not impossible. The company that we’re bullish on is AGCO Corp (NYSE: AGCO) and here are a few reasons why you should be bullish too.
AGCO is a global manufacturer and marketer of a wide range of agricultural machinery used in farming. The company with a market capitalization in excess of $4.5 billion also provides maintenance services for the equipment, which over the time generates a steady stream of revenues for the company.
The company has a diversified product line which includes tractors, sprayers, handling equipment, and agro-storage equipment. The company has four core brands under which these equipment are marketed namely Valtra, Fendt, Massey Ferguson, and Challenger. AGCO Corporation is also geographically diversified with its presence in more than 140 countries.
AGCO Corporation in order to further diversify its product line acquired GSI Holdings in 2011 for $940 million. GSI Holdings is the world’s largest manufacturer of grain storage equipment. The annual revenues of GSI Holdings in the year ending 2011, stood at $700 million. Analysts believe that the financial benefits of the acquisition on the books of AGCO will be seen in the second half of 2012. So it’s safe to expect strong revenues from AGCO in the coming quarters, on the back of the acquisition.
Additionally AGCO’s $220 million worth, Marktoberdorf plant in Germany will be operational in the second half of the year. The facility would function as a manufacturing plant for Fendt tractors along with CVT transmissions for the company. The beginning of operations at the facility will result an almost immediate increase in inventory levels, and we can expect higher revenues by the end of the current fiscal. Whether the operations would be profitable or not, that only time can tell.
The company also announced that that it would be spending $20 million on its tractor manufacturing plant in Beauvais, France. Through this investment, the company expects to improve on its tractor production efficiency which over the time would help in reducing operating costs.
China and India are also advancing in terms of technology in the agriculture business. The long term growth prospects presented by the emerging countries need to be heeded to. These activities in the recent past indicate that the company realizes the growth opportunities presented by the developing countries, and in order to meet the demand, AGCO is preparing to rev up its production capacity as well as focusing on improving the efficiency.
In the recent quarterly results, the earnings of the company saw a 53% upside compared to the same period last year. The topline too saw an increase of 14% compared to the year ago quarter, despite the 11% losses in forex. The results clearly beat the market expectations, and with both topline and bottomline advancing, the results look great.
AGCO corporation shares its market space with Deere & Company (NYSE: DE) and CNH Global (NYSE: CNH). All the three stock have given nearly the same returns over the last year, but it is the metrics that steal the show.
|
Company |
P/E |
PEG |
Debt/Equity |
ROI |
|
AGCO Corp |
6.64 |
0.53 |
47% |
13.75% |
|
Deere & Company |
10.93 |
1.13 |
422% |
9.46% |
|
CNH Global |
8.8 |
0.59 |
206% |
4.73% |
AGCO Corp appears to be the most undervalued stock amongst the mentioned competitors. Additionally the company enjoys the highest returns on its investments, and an indicator of good health, the company has the lowest debt/equity ratios amongst the three.
The company has expanded its production capacity and its product line. The benefits of these activities will start reflecting in the coming quarters. The financial results posted by the company look good, and the fundamentals of the company are better than its competitors in every regard. We believe that due to all the above mentioned reasons, AGCO looks well poised to for an upsurge in its stock price. We have a Foolish Buy rating for the stock.
PiyushArora has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
