Despite the uncertain macroeconomic environment, AGCO Corporation (AGCO) delivered a solid financial performance in the first quarter. Its EPS and revenue came above analyst expectations. The company’s EPS beat the consensus estimate by 29.4%, while its revenue came 5.7% above analyst estimates.
With the stock expected to maintain its performance in the upcoming term, AGCO could be worth owning.
AGCO’s Chairman, President, and CEO, Eric Hansotia, stated, “With continued execution of our strategy, AGCO delivered robust sales growth and margin expansion in the first quarter as healthy farm economics continued to support elevated global demand. Our solid operational performance, continued pricing actions, and a stabilizing supply chain contributed to the excellent first quarter results.”
“Our solid operational performance, continued pricing actions, and a stabilizing supply chain all contributed to the excellent first quarter results. The success of our farmer-first strategy focused on growing our precision ag business, globalizing a full line of our Fendt branded products, and expanding our parts and service business, is generating strong growth in these margin-rich businesses,” he added.
The company’s order board remains strong, and it remains confident in the success of its products and the strength of large ag demand. AGCO sales in North America, South America, and Europe/Middle East grew strongly in the first quarter. The Asia/Pacific/Africa sales dipped 9.9% year-over-year.
AGCO has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. For fiscal 2023, the company’s net sales are expected to be approximately $14.50 billion, while its gross and operating margins are expected to improve over the previous year. Its EPS is expected to come in at $14.40.
AGCO’s stock has gained 10.5% over the past nine months and 5% over the past year to close the last trading session at $123.56. Wall Street analysts expect the stock to hit $153.27, indicating a potential upside of 27.7%.
Here’s what could influence AGCO’s performance in the upcoming months:
Robust Financials
For the fiscal first quarter that ended March 31, 2023, AGCO’s net sales increased 24.1% year-over-year to $3.33 billion. The company’s adjusted income from operations increased 60.1% from the year-ago period to $388.80 million.
Its adjusted net income increased 46.9% year-over-year to $263.10 million. In addition, its adjusted net EPS came in at $3.51, representing an increase of 46.9% over the prior-year quarter.
Strong Historical Growth
AGCO’s revenue grew at a CAGR of 14% over the past three years. Its EBIT grew at a CAGR of 39.6% over the past three years. In addition, its EPS grew at a CAGR of 99.5% in the same time frame.
Discounted Valuation
In terms of forward non-GAAP P/E, AGCO’s 8.42x is 48.4% lower than the 16.34x industry average. Its 0.74x forward EV/Sales is 53.9% lower than the 1.61x industry average. Likewise, its 6.81x forward EV/EBIT is 53.2% lower than the 14.56x industry average.
High Profitability
In terms of the trailing-12-month EBIT margin, AGCO’s 10.87% is 12.9% higher than the 9.63% industry average. Its 1.29x trailing-12-month asset turnover ratio is 60.5% higher than the 0.80x industry average. Likewise, its 24.86% trailing-12-month Return on Common Equity is 79.7% higher than the industry average of 13.83%.
Positive Analyst Estimates
The consensus EPS estimate of $14.67 for the fiscal year 2023 represents an 18.10% improvement year-over-year. The consensus revenue estimate of $14.54 billion for the same year indicates a 15% increase from the prior year. Its EPS for fiscal 2024 is expected to increase marginally year-over-year to $14.67, while its revenue is expected to increase 1% year-over-year to $14.69 billion.
AGCO’s EPS and revenue for the quarter ending June 30, 2023, are expected to increase 55.5% and 26.3% year-over-year to $3.70 and $3.72 billion, respectively.
POWR Ratings Show Promise
AGCO has an overall B rating, equating to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. AGCO has an A grade for Value, consistent with its discounted valuation.
It has a B for Growth and Sentiment, in sync with its solid historical growth and favorable analyst estimates.
Within the Agriculture industry, AGCO is ranked #2 out of 26 stocks. Click here to access AGCO’s ratings for Momentum, Stability, and Quality.
Bottom Line
Despite the uncertain macroeconomic environment, AGCO delivered a strong financial performance in the first quarter. The company is confident of maintaining strong momentum throughout fiscal 2023 as its order board remains healthy. Although there are concerns about a recession, AGCO is well-positioned to tackle it, thanks to its strong global presence.
Given its robust financials, solid historical growth, discounted valuations, favorable analyst estimates, and high profitability, it could be wise to buy the stock now.
How Does AGCO Corporation (AGCO) Stack Up Against Its Peers?
AGCO has an overall POWR Rating of B. Check out these other stocks within the Agriculture industry with A (Strong Buy) or B (Buy) ratings: Golden Agri-Resources Ltd (GARPY), MariMed Inc. (MRMD), and Dole plc (DOLE).
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AGCO shares were trading at $120.09 per share on Tuesday afternoon, down $3.47 (-2.81%). Year-to-date, AGCO has declined -13.06%, versus a 8.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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