Bull Of The Day: AGCO Corporation (AGCO)

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AGCO Corporation (AGCO - Free Report)  is a Zacks Rank #1 (Strong Buy) that is a leading manufacturer and distributor of agricultural equipment and replacement parts. The company offers its products through a network of dealers in 140 countries.

The stock saw a nice pullback over the back half of 2022, falling about 30% from the 2021 highs. However, the AGCO has turned higher after a big EPS beat. Price is now above all moving averages and investors seem to be coming back into the stock.

More about AGCO

The company was founded in 1990 and is headquartered in Duluth, Georgia. It employs over 21,000 and has a market cap of almost $10 billion.

The stock has a Forward PE of 11, making it a value play. AGCO has a Zacks Style Score of “A” in Value and Growth, but “D” in Momentum. The stock also pays a small dividend of 0.6%.

The company’s full range of agricultural equipment includes tractors, combines, sprayers, hay tools, forage equipment, grain storage, and protein production systems.

Higher grains prices and a hot agricultural market have helped AGCO over the last few years, with the company seeing eight straight EPS beats since 2020. Last quarter didn’t disappoint, as the company reported one of the biggest beats during that earnings win streak.

Earnings Beat

AGCO reported earlier this month, seeing a 79% EPS surprise to the upside. The company saw revenues come in above expectations and guided higher on both the top and bottom line.

AGCO saw regional tractor sales up 14% in North America, 22% in South America, and 16% in Western Europe. Net sale standouts were North America (+38.8%) and South America (+56.2%).

Management commented that they expect supply chain issues to persist, but their teams work tirelessly to mitigate the impact of these issues. They see sales growth and margin expansion in 2022 as demand trends positively.

AGCO went on to guided FY22 production up 5-10 years over a year and operating margin at 9.8%. They see pricing up 7-8% year over year and both NA and SA sales at 5-10% year over year.

AGCO guided Q1 margins -100 bps year over year and Q2 margins flat year over year. These margins are seen lower due to ongoing chip shipping delays, but they were optimistic that margins will improve in the back half of the year.

AGCO Corporation Price and EPS Surprise

AGCO Corporation Price and EPS Surprise

AGCO Corporation price-eps-surprise | AGCO Corporation Quote

Estimates Rising

While short-term estimates are lower due to supply chain issues, the numbers are looking better towards the back half of the year. Analysts are raising estimates for both the current year and next year. For the current year, we see a 9% jump over the last 7 days, from $10.51 to $11.49. For next year, we see a 10% jump over the same time frame.

Oppenheimer is one firm very bullish on the stock, with an Outperform rating and a $164 price target. The analyst cites margin durability, order book strength, and global demand as reasons to be bullish.

The Technical Take

AGCO’s run started in 2020 as earnings improved. The stock was trading around $50 for more than a decade, but after the COVID crash, the stock started to trend higher. The stock more than doubled from the pre-COVID range to the recent highs. You can’t blame investors for taking profits after that run, especially after the supply chain issues that arose.

After about six months of poor price action, the charts are looking bullish again. The stock popped above the 200-day moving average for the first time since October. The bulls are close to taking out those highs and a move over $135 could start a trend back to the all-time high area around $150-155.

In Summary

AGCO is doing a great job sorting through the supply chain issues and it shows in this recent quarter. Demand is still strong, so if things do improve in the back half of the year, the bottom line should benefit.  

Investors looking for a trade to highs can lean on the 200-day moving average at $127 and even the 50-day moving average at $119.50 for those wanting to take more risk. 

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