Company Reports

Agco is a pure-play agricultural equipment company that has traditionally been focused on tractors. We believe it will continue to be a top-three player in the ag industry. The company has been successful in emerging markets, where customers typically look for reasonably priced equipment. In developed markets, it faces competition from industry leaders Deere and CNH, which provide customers high-quality and strong-performing products, making it difficult for Agco to gain ground. The company’s peers help customers reduce the total cost of ownership through improved fuel efficiency, limited machine downtime, and consistent parts availability.

Agco reported first-quarter earnings slightly below our expectations. Our fair value estimate decreased 1% to $139, down from $141. The decline was largely due to slight tweaks in our near-term sales and margin expectations. For 2024, we’re forecasting sales to decline by 6% year on year (including Trimble). On profitability, we expect adjusted operating margins to decline by 60 basis points to 11.3%.

Agco is a pure-play agricultural equipment company that has traditionally been focused on tractors. We believe it will continue to be a top-three player in the ag industry. The company has been successful in emerging markets, where customers typically look for reasonably priced equipment. In developed markets, it faces competition from industry leaders Deere and CNH, which provide customers high-quality and strong-performing products, making it difficult for Agco to gain ground. The company’s peers help customers reduce the total cost of ownership through improved fuel efficiency, limited machine downtime, and consistent parts availability.

Agco reported mixed fourth-quarter earnings, as demand continues to slow. We reduced our fair value estimate by 3% to $141 per share (down from $145 previously). Reported figures in the fourth quarter came in below our expectations. Sales declined by 2.5% year on year, while operating margins contracted 160 basis points to 10.3%. South America was the most challenged region, where sales declined nearly 39% year on year. Operating margins came in at nearly 4% versus 20% in the year-ago period. Lower commodity prices have put pressure on performance in South America.

Agco is a pure-play agricultural equipment company that has traditionally been focused on tractors. We believe it will continue to be a top-three player in the ag industry. The company has been successful in emerging markets, where customers typically look for reasonably priced equipment. In developed markets, it faces competition from industry leaders Deere and CNH, which provide customers high-quality and strong-performing products, making it difficult for Agco to gain ground. The company’s peers help customers reduce the total cost of ownership through improved fuel efficiency, limited machine downtime, and consistent parts availability.

The ag slowdown has been the story for the past couple of quarters. Ag demand in South America has been weaker than ag manufacturers were expecting. Europe has also been challenged, while North America remains constructive, though U.S. corn supplies have started to tick up lately, pressuring U.S. corn prices.

Agco is a pure-play agricultural equipment company that has traditionally been focused on tractors. We believe it will continue to be a top-three player in the ag industry. The company has been successful in emerging markets, where customers typically look for reasonably priced equipment. In developed markets, it faces competition from industry leaders Deere and CNH, which provide customers high-quality and strong-performing products, making it difficult for Agco to gain ground. The company’s peers help customers reduce the total cost of ownership through improved fuel efficiency, limited machine downtime, and consistent parts availability.

Agco reported third-quarter earnings largely in line with our expectations. Sales increased to $3.4 billion in the quarter, up 10.7% year on year. Agco pointed to solid demand for large ag equipment as a key driver to top-line growth. Adjusted operating margins expanded 190 basis points to 12.6%, largely due to strong price realization and favorable sales mix.

Agco is a pure-play agricultural equipment company that has traditionally been focused on tractors. We believe it will continue to be a top-three player in the ag industry. The company has been successful in emerging markets, where customers typically look for reasonably priced equipment. In developed markets, it faces competition from industry leaders Deere and CNH, which provide customers high-quality and strong-performing products, making it difficult for Agco to gain ground. The company’s peers help customers reduce the total cost of ownership through improved fuel efficiency, limited machine downtime, and consistent parts availability.

On Sept. 28, Agco announced it was entering into a joint venture with Trimble. Agco is paying $2 billion via a combination of cash on hand, free cash flow, and new financing (secured an additional $2 billion) for 85% interest in the joint venture. The purchase price for Trimble’s ag business comes out to an enterprise value of $2.35 billion, meaning the transaction multiple is 13.8 times. The multiple doesn’t seem too expensive to us when we compare it to the 37 times CNH paid to acquire Raven in mid-2021. The transaction multiple is also below Trimble’s consolidated average multiple of 16.5 times over the past seven years.

Agco is a pure-play agricultural equipment company that has traditionally been focused on tractors. We believe it will continue to be a top-three player in the ag industry. The company has been successful in emerging markets, where customers typically look for reasonably priced equipment. In developed markets, it faces competition from industry leaders Deere and CNH, which provide customers high-quality and strong-performing products, making it difficult for Agco to gain ground. The company’s peers help customers reduce the total cost of ownership through improved fuel efficiency, limited machine downtime, and consistent parts availability.

Agco is a pure-play agricultural equipment company that has traditionally been focused on tractors. We believe it will continue to be a top-three player in the ag industry. The company has been successful in emerging markets, where customers typically look for reasonably priced equipment. In developed markets, it faces competition from industry leaders Deere and CNH, which provide customers high-quality and strong-performing products, making it difficult for Agco to gain ground. The company’s peers help customers reduce the total cost of ownership through improved fuel efficiency, limited machine downtime, and consistent parts availability.

Following Agco’s second-quarter results, we are raising our fair value estimate to $151 per share from $149 to reflect our stronger near-term outlook. Our valuation puts Agco’s stock in slightly undervalued territory. The agriculture cycle continues to run at a solid pace, and we think constrained crop supplies will keep ag demand strong in the near term.

Agco is a pure-play agricultural equipment company that has traditionally been focused on tractors. We believe it will continue to be a top-three player in the ag industry. The company has been successful in emerging markets, where customers typically look for reasonably priced equipment. In developed markets, it faces competition from industry leaders Deere and CNH, which provide customers high-quality and strong-performing products, making it difficult for Agco to gain ground. The company’s peers help customers reduce the total cost of ownership through improved fuel efficiency, limited machine downtime, and consistent parts availability.

Agco reported solid earnings to start 2023, leading us to increase our fair value estimate to $149 from $144 previously. Demand for large ag products continues to run strong, benefiting the equipment maker. The replacement cycle continues to be a key driver, as farmers have grown comfortable replacing aged machinery during the cyclical upturn. We see no signs of the solid ag cycle letting up in 2023, leading us to forecast over 14% top-line growth, while operating margins expand by 50 basis points to 10.8%.

Agco is a pure-play agricultural equipment company that has traditionally been focused on tractors. We believe it will continue to be a top-three player in the ag industry. The company has been successful in emerging markets, where customers typically look for reasonably priced equipment. In developed markets, it faces competition from industry leaders Deere and CNH, which provide customers high-quality and strong-performing products, making it difficult for Agco to gain ground. The company’s peers help customers reduce the total cost of ownership through improved fuel efficiency, limited machine downtime, and consistent parts availability.

Agco is a pure-play agricultural equipment company that has traditionally been focused on tractors. We believe it will continue to be a top-three player in the ag industry. The company has been successful in emerging markets, where customers typically look for reasonably priced equipment. In developed markets, it faces competition from industry leaders Deere and CNH, which provide customers high-quality and strong-performing products, making it difficult for Agco to gain ground. The company’s peers help customers reduce the total cost of ownership through improved fuel efficiency, limited machine downtime, and consistent parts availability.

Agco posted strong results to close out 2022, as many of the tailwinds that we’ve highlighted in recent quarters were still at play. Demand for ag machinery continues to run high as farmers replace their aging machines, especially in the large ag vertical. Many farmers held on to their machines during the last downturn, which extended the average fleet age across the industry.

Agco is a pure-play agricultural equipment company that has traditionally been focused on tractors. We believe it will continue to be a top-three player in the ag industry. The company has been successful in emerging markets, where customers typically look for reasonably priced equipment. In developed markets, it faces competition from industry leaders Deere and CNH, which provide customers high-quality and strong-performing products, making it difficult for Agco to gain ground. The company’s peers help customers reduce the total cost of ownership through improved fuel efficiency, limited machine downtime, and consistent parts availability.

On Dec. 16, Agco held its investor day where it provided sales and EPS guidance for 2023 as well its revised precision ag target for 2025. In terms of sales, management is now forecasting approximately $14 billion in consolidated sales, thanks to strong ag fundamentals. The new guidance came in approximately $900 million above our expectations, leading us to increase our fair value estimate to $142 from $133 previously. EPS is expected to come in around $13.50, roughly 14% higher than the midpoint of management’s 2022 EPS guidance range. Like peers, Agco is benefiting from the ongoing replacement cycle in large ag equipment. Despite rising input costs, farmer profits have been supported by high crop prices, giving them flexibility to refresh aging equipment.