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AGCO Stock Appreciates 23% YTD: What's Driving the Rally?

Zacks Equity Research

Shares of AGCO Corporation AGCO have rallied 23.2% year to date, fueled by its forecast-topping performance in fourth-quarter 2018 and an encouraging outlook for 2019. The company is likely to benefit from its focus on strategic investments and capital-allocation plan.

AGCO, a Zacks Rank #3 (Hold) stock, has a market cap of roughly $5.25 billion and average volume of shares traded in the last three months was around 634K. The company has an expected long-term earnings per share growth rate of 14.4%, higher than the industry average of 8.9%.

The company outpaced the Zacks Consensus Estimate in all of the trailing four quarters, average positive earnings surprise being 59.36%. The stock’s 23.2% year-to-date rise outperformed the  industry’s growth of 7.6%.



Let’s delve deeper and analyze the reasons behind the company’s impressive price performance and find out if there is room for further appreciation:

Strong Q4: AGCO reported fourth-quarter 2018 adjusted earnings per share of $1.31, up 19% year over year. The reported figure surpassed the Zacks Consensus Estimate of $1.23. Revenues of $2,592 million were up 2.6% year over year and came ahead of the Zacks Consensus Estimate of $2,574 million.

Upbeat Outlook:  AGCO has reaffirmed its net sales 2019 outlook at $9.6 billion, owing to improved sales volumes and positive pricing. It anticipates gross and operating margin to improve from the 2018 level, backed by positive impact of pricing and cost reduction. Considering these, the company expects 2019 earnings to come in at around $4.60 per share.

Additionally, AGCO forecasts industry demand in South America to improve this year from the prior-year level. Backed by favorable wheat prices and crop production, farm economics are expected to improve modestly across Western Europe in the current year, leading to relatively stable demand in European markets.

Positive Growth Projections: The Zacks Consensus Estimate for AGCO’s 2019 earnings is currently pegged at $4.67, reflecting year-over-year growth of 20%. The same for 2020 stands at $5.39, indicating a year-over-year rise of 15.5%.

Growth Drivers
 
AGCO is consistently making strategic investments to enhance and expand product lines, upgrade system capabilities and improve factory productivity. In a bid to execute its product-development plan, and meet new emission requirements in Brazil and Europe, the company intends to maintain its level of investment in 2019. As a result, AGCO expects capital expenditures in 2019 to flare up roughly above $25 million compared with the 2018 level. Notably, its spending plan for the ongoing year will support long-term business growth.

AGCO has completed two acquisitions in the last two years. In September 2017, it acquired Precision Planting — a leader in innovative planting technology. Later that October, AGCO purchased the forage division of the Lely Group, which will significantly enhance hay and forage product line in Europe and drive growth in this market.

Moreover, AGCO is focused on the company’s long-term capital allocation plan by returning cash to its shareholders. Over the past six and a half years, the company has executed share repurchases of $1.2 billion, which reduced share count by more than 20%. Last year, it completed share repurchase worth $184 million and expects to continue share repurchases in 2019 as well. AGCO also aims to generate solid free cash flow this year.

AGCO Corporation Price and Consensus

AGCO Corporation Price and Consensus | AGCO Corporation Quote

Stocks to Consider

A few better-ranked stocks in the Industrial Products sector are Mueller Industries, Inc MLI, Lawson Products, Inc. LAWS and Albany International Corp. AIN, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Mueller Industries has an expected earnings growth rate of 2.2% for 2019. The company’s shares have rallied 18%, over the past year.

Lawson Products has an impressive projected earnings growth rate of 102.5% for the current year. The stock has appreciated 21.8% in a year’s time.

Albany International has an estimated earnings growth rate of 44.7% for the ongoing year. The company’s shares have gained 13.5%, in the past year.

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