Food prices have been rising at an accelerated rate since the beginning of this year, due primarily to crop failures in China and a consequent increase in demand for agricultural commodities from the world’s largest consumption-driven economy. This, together with rising raw material costs and global supply chain disruptions, has resulted in a 2.4% year-over-year rise in food prices, as of April 2021, according to the Bureau of Labor Statistics.
The rising demand for agricultural commodities requires an equivalent rise in supply to stabilize prices. Rising prices will no doubt incentivize agricultural companies to produce more. Consequently, the global agricultural equipment market is expected to grow at a 5.6% CAGR over the next three years to hit $265.90 billion by 2025.
Given this backdrop, we think the of stocks agricultural equipment and supply companies Deere & Company (DE), The Mosaic Company (MOS), and AGCO Corporation (AGCO) should continue advancing in the coming months.
Deere & Company (DE)
DE is engaged in the manufacture and distribution of equipment used in agriculture, construction, forestry, and turf care. It also offers wholesale financing to dealers of the equipment, extended equipment warranties, as well as retail revolving charge accounts.
On May 10, DE redefined its 5M Series Tractor lineup by introducing new technology and transmission options, and more top-end horsepower with the addition of a new 125-horsepower tractor. Its integrated AutoTrac guidance helps operators reduce inputs, such as fuel, seed, and fertilizer, by minimizing overlap in straight line applications in the fields, thus reducing costs significantly. The company expects this redefined lineup to generate good sales and good revenues.
In collaboration with Full-Tree Forestry teams, on April 22, DE added Smooth Boom Control (SBC) technology to its M-Series Tracked Feller Bunchers and MH-Series Tracked Harvesters, to enhance machine operations in forestry applications. Ensuring responsive hydraulic function actuation, this technology improves overall machine reactiveness and controllability.
For its fiscal 2021 first quarter, ended January 31, DE’s total net sales and revenues increased 19.4% year-over-year to $9.11 billion. The company’s total operating profit came in at $1.64 billion, which represents a 154% year-over-year rise. Its net income is reported to be $1.22 billion, up 136.8% from the prior-year period. Its EPS increased 137.4% year-over-year to $3.87.
A $4.17 consensus EPS estimate for the current quarter, ending July 30, represents a 62.4% rise year-over-year. DE surpassed the Street’s EPS estimates in each of the trailing four quarters. The $9.84 billion consensus revenue estimate for the current quarter represents a 25.2% improvement year over year. Analysts expect the stock’s EPS to grow at 35% per annum over the next five years.
DE has climbed 202.8% over the past year to close Friday’s trading session at $384. Over the past nine months, the stock has gained 100.9%.
DE’s strong fundamentals are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Sentiment. In addition to the POWR Ratings grades we’ve just highlighted, one can see DE’s ratings for Value, Momentum, Growth, Stability, and Sentiment here. DE is ranked #55 of 86 stocks in the A-rated Industrial - Machinery industry.
Click here to check out our Industrial Sector Report for 2021
The Mosaic Company (MOS)
MOS produces and markets concentrated phosphate and potash crop nutrients internationally. The company also provides nitrogen-based crop nutrients and animal feed ingredients, and other ancillary services. MOS sells its products to wholesale distributors, retail chains, farmers, cooperatives, independent retailers, and national accounts.
After achieving bold ESG performance targets in 2020, on April 22, MOS announced its goal of reducing water usage and gas emissions from its facilities by 20% per tonne of product by 2025.
MOS and AgBiome, a leader in discovering and developing innovative agricultural products from diverse microbial communities, collaborated on March 23 to discover, develop and launch novel biological approaches to enhance soil fertility, leading to better crop quality and yield. MOS hopes to use AgBiome’s industry-leading expertise in soil health and product development, as well as its global distribution and sales network.
For its fiscal year 2021 first quarter, ended March 31, MOS’ net sales increased 27.8% year-over-year to $2.30 billion. The company’s gross profit came in at $434.90 million, up 950.5% from the prior-year period. Its operating earnings are reported to be $313.20 million, compared to a $66.20 million operating loss in the first quarter of 2020. Its net earnings were $156.70 million for the quarter, compared to a net loss of $203 million in the prior-year period. Also, its EPS came in at $0.41, versus a $0.54 loss per share in the prior-year period.
Analysts expect MOS' EPS to improve 727.3% year-over-year for the current quarter, ending June 30, to $0.91. The stock has surpassed consensus EPS estimates in each of the trailing four quarters. Analysts expect the MOS’ revenue to be $2.84 billion for the current quarter, which represents a 39.1% year-over-year rise. Analysts expect the stock’s EPS to grow at 7% per annum over the next five years.
The stock has gained 250.9% over the past year and 102.5% over the past six months. It closed Friday’s trading session at $36.49.
MOS' POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system.
The stock has an A grade for Growth, and a B grade for Value. We have also graded MOS for Stability, Sentiment, Quality and Momentum. Click here to access all MOS’ ratings. Of 29 stocks in the Agriculture industry, MOS is ranked #9.
AGCO Corporation (AGCO)
AGCO is a manufacturer and distributor of agricultural equipment and related replacement parts worldwide. The firm's products include tractors, combines, self-propelled sprayers, hay tools, forage equipment, seeding and tillage equipment, implements, and grain storage and protein production systems.
On May 4, AGCO, in collaboration with Infosys (INFY), a global leader in next-generation digital services and consulting, developed FendtONE, an enhanced Customer Relationship Management (CRM) solution for AGCO’s dealers and customers. The company hopes its platforms will maximize farmers' experiences with its products and services with easy-to-use, smart and high-quality solutions.
For its fiscal year 2021 first quarter, ended March 31, AGCO’s net sales came in at $2.38 billion, which represented a 23.4% improvement from the prior-year period. The company’s gross profit was $570.50 million, which represents a 26.6% improvement from the year-ago period. Its adjusted income from operations is reported at $196.50 million for the quarter, up 94.2% from the prior-year period. Its adjusted net income increased 132.2% year-over-year to $152.10 million. And its adjusted EPS increased 132.6% year-over-year to $2.
Analysts expect AGCO’s EPS for the current quarter, ending June 30, 2021, to be $2.25, up 102.7% year-over-year. It surpassed the Street’s EPS estimates in each of the trailing four quarters. For the current quarter, analysts expect AGCO’s revenue to be $2.74 billion, representing a 36.7% rise from the prior-year period. The stock’s EPS is expected to grow at 11.4% per annum over the next five years.
AGCO has gained 219.4% over the past year and 98.3% over the past nine months. It closed Friday’s trading session at $145.90.
It’s no surprise that AGCO has an overall A rating, which equates to Strong Buy in our POWR Ratings system.
AGCO has an A grade for Growth and Value, and a B grade for Sentiment. In addition to the POWR Ratings grades we’ve just highlighted, one can see AGCO’s ratings for Stability, Quality and Momentum here. AGCO is ranked #2 in the Agriculture industry.
DE shares were trading at $383.34 per share on Monday afternoon, down $0.66 (-0.17%). Year-to-date, DE has gained 42.83%, versus a 11.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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