Agco Earnings: Ag Demand Remains Consistent, While Supply Chains Improve in Farm Equipment

Following Agco’s AGCO 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.

No-moat Agco has steadily gained ground with its premium Fendt brand over the past handful of years, a period management has categorized as an era of product maturity. Essentially, the company has redesigned its tractors for the North American market. The example Agco gives here is that the region requires different tread spacing to plant rows much wider than in Europe. From there, the plan has been to bring online the Ideal combine, Momentum planter, and sprayers. The Fendt brand is showing solid potential, and we think it will be a growth driver for the company in the coming years.

On the precision ag front, Agco continues to press forward. The company recently held a technology day, where it reaffirmed its 2025 target of reaching $1 billion in precision ag sales (on pace to achieve over $800 million in 2023). Management also confirmed plans to launch autonomous capabilities across the crop production cycle by 2030, but it didn’t go as far as saying how much revenue precision ag could bring by the end of this decade.

The first milestone will be launching a retrofit offering for targeted spraying by 2024 and then an OEM offering by 2026. The company is working to introduce autonomous grain carts and tillage solutions by 2025. In our view, the story arc of Agco’s precision ag journey is getting closer to that of industry peers Deere and CNH. We estimate that precision ag is a low- to mid-single-digit billion-dollar opportunity for Agco by 2030.