Despite a challenging macroeconomic environment, many governments are taking initiatives to boost high-quality crop production and enhance agricultural productivity in response to the rapid increase in the global population and demand for innovative food products.
Amid this backdrop, buying fundamentally strong agriculture stocks Archer-Daniels-Midland Company (ADM) and AGCO Corporation (AGCO), could be wise. Whereas, it could be wise to avoid Cronos Group Inc. (CRON), given its poor fundamentals.
Before diving deeper into their fundamentals, let’s discuss what’s happening in the agriculture industry.
The agriculture industry was severely hit last year due to the supply-related constraints arising out of the Ukraine-Russia war. The supply chain constraints meant that prices of agri-commodities soared. With the rise in the global population, food shortage will be one of the primary concerns. However, the ever-rising demand for food will help drive the profitability of agriculture stocks.
Furthermore, the government is pushing for increased domestic fertilizer production through the Fertilizer Production Expansion Program. In 2022, the USDA made $500 million available under the FPEP to spur domestic competition and combat rising fertilizer costs caused by the war in Ukraine. The Commodity Credit Corporation is now providing up to $400 million in additional FPEP funding.
The global agriculture market is expected to grow at a CAGR of 9.1% to reach $19 trillion by 2027.
Let’s take a closer look at the fundamentals of the featured stocks.
Stocks to Buy:
Archer-Daniels-Midland Company (ADM)
ADM procures, transports, stores, processes, and merchandises agricultural commodities, products, and ingredients in the United States, Switzerland, the Cayman Islands, Brazil, Mexico, Canada, the United Kingdom, and internationally. The company operates in three segments: Ag Services and Oilseeds, Carbohydrate Solutions, and Nutrition.
In terms of the trailing-12-month levered FCF margin, ADM’s 5.50% is 84.4% higher than the 2.98% industry average. Likewise, its 4.15% trailing-12-month net income margin is 15.8% higher than the 3.59% industry average. Furthermore, its 1.70x trailing-12-month asset turnover ratio is 92.7% higher than the 0.88x industry average.
ADM’s revenues for the fiscal second quarter ended June 30, 2023, came in at $25.19 billion. The company’s gross profit came in at $1.88 billion. Its adjusted net earnings for the period came in at $1.03 billion. Its adjusted EBITDA came in at $1.63 million, compared to an adjusted EBITDA loss of $1.76 million in the year-ago quarter. Additionally, its adjusted earnings per share came in at $1.89.
Analysts expect ADM’s revenue for the quarter ending September 30, 2023, to increase 0.9% year-over-year to $24.29 billion. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 12.5% to close the last trading session at $84.98.
ADM’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Stability, Sentiment, and Quality. It is ranked #3 out of 27 stocks in the Agriculture industry. For ADM’s Growth, Value, and Momentum grades, click here.
AGCO Corporation (AGCO)
AGCO manufactures and distributes agricultural equipment and related replacement parts worldwide.
On June 26, 2023, AGCO welcomed True Ag & Turf to its dealership network, expanding in Nebraska with existing dealerships merging under the True Ag brand while retaining local management and staff.
Bill Hurley, VP of Distribution at AGCO, said, "This new dealership will bring full line access to the best of our brands, including Massey Ferguson and Fendt, and that means greater precision ag technologies and superior services to growers in eastern Nebraska."
In terms of the trailing-12-month EBIT margin, AGCO’s 11.88% is 22.1% higher than the 9.73% industry average. Likewise, its 7.84% trailing-12-month net income margin is 24.8% higher than the 6.28% industry average. Furthermore, its 1.33x trailing-12-month asset turnover ratio is 69.1% higher than the 0.79x industry average.
For the second quarter ended June 30, 2023, AGCO’s net sales increased 29.8% year-over-year to $3.82 billion. Its gross profit rose 45.6% year-over-year to $1 billion. Its net income rose 79.6% year-over-year to $319.20 million. Additionally, its EPS came in at $4.26, representing an increase of 79.7% year-over-year.
Street expects AGCO’s EPS and revenue for the quarter ended September 30, 2023, to increase 5.4% and 11.5% year-over-year to $3.35 and $3.48 billion, respectively. It surpassed the consensus EPS estimates in each of the four trailing quarters. Over the past year, the stock has gained 29.7% to close the last trading session at $133.33.
AGCO’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #2 in the same industry. It has an A grade for Value and a B for Growth, Momentum, and Sentiment. Click here to see the other ratings of AGCO for Stability and Quality.
Stock to Sell:
Cronos Group Inc. (CRON)
CRON operates as a cannabinoid company. It manufactures, markets, and distributes hemp-derived supplements and cosmetic products through e-commerce, retail, and hospitality partner channels under the Lord Jones brand in the United States.
In terms of the trailing-12-month gross profit margin, CRON’s 8.53% is 84.7% lower than the 55.60% industry average. Likewise, its 4.07% trailing-12-month Capex/Sales is 13% lower than the 4.68% industry average. Additionally, its 0.07x trailing-12-month asset turnover ratio is 80.6% lower than the industry average of 0.35x.
CRON’s net revenue for the first quarter ended March 31, 2023, decreased 19.5% year-over-year to $20.14 million. Its gross profit decreased 65.6% year-over-year to $2.38 million. Its net loss narrowed 41% year-over-year to $19.26 million. Its net loss per share narrowed 44.4% year-over-year to $0.05.
For the quarter ended June 30, 2023, CRON’s EPS is expected to remain negative. Its revenue for the same quarter is expected to decline 2.3% year-over-year to $22.45 million. It failed to surpass the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has declined 40.9% to close the last trading session at $1.91.
CRON’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of D, translating to a Sell in our proprietary rating system.
It has an F grade for Momentum and a D for Value and Quality. It is ranked #26 in the Agriculture industry. To see the additional ratings of CRON for Growth, Stability, and Sentiment, click here.
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ADM shares were trading at $85.37 per share on Wednesday afternoon, up $0.39 (+0.46%). Year-to-date, ADM has declined -7.00%, versus a 18.78% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
2 Agriculture Stocks to Buy in August 2023, 1 to Sell StockNews.com
