Analyst Note| Brian Bernard, CFA, CPA |
Agco’ first-quarter results showed demand for tractors and combines were strong globally. Net sales increased 23.4% year over year to $2.4 billion, as customers continued to refresh their farm equipment. We’ve raised our fair value estimate to $81 from $77, reflecting stronger revenue and margin expectations in the near term. We believe increasing commodity prices, grain consumption and positive farmer sentiment will push sales higher, leading us to forecast nearly 17% sales growth in 2021. We also think Agco will benefit from strong replacement demand for large farm equipment, especially in North America. The average fleet age of large equipment was high entering the cycle upturn. During strong economic periods, the profitability of farmers increases significantly, affording them the ability to refresh their machine fleet.