AGCO is in a long, deep cup-with-handle base and climbed above its buy point today. This heavy equipment stock is today's IBD 50 Stocks to Watch pick and a leader in a high-ranking industry group.
AGCO makes agricultural equipment including tractors, combine harvesters and grain storage bins. It also makes ground-care machinery that's used for parks, golf courses, sports grounds, roadsides and equestrian facilities.
The heavy equipment maker has 1,821 dealers throughout the U.S., focusing on wheat, hay, corn, canola, dairy and livestock operations. Those make up 24% of global sales. The European and Middle Eastern markets make up 59% of global sales, coming from 868 dealers, and focused on wheat, barley, corn, dairy and livestock.
Smaller markets include South America, with 9% of sales, and Asia-Pacific and Africa regions, with 8% of sales.
The Duluth, Ga.-based company is ranked third out of seven companies in the farm machinery industry group. This group is ranked 11th out of the 197 IBD industry groups.
Heavy Equipment Stock Tops Buy Point
AGCO formed a long cup-with-handle base and rose modestly above the 137.10 buy point in early afternoon trading. The buy range goes to 143.96.
The stock completed the right side of the cup after reporting a mixed Q3 earnings report on Nov. 1. Shares initially dropped after AGCO reported better-than-expected adjusted EPS but missed sales estimates. A stronger U.S. dollar suppressed Q3 European sales by 12%.
Management cited supply chain issues, causing it to hold more raw materials and commit additional cash to inventories and partially completed equipment.
Despite the negative talking points, several analysts raised their price targets on the stock following the report, giving it a boost.
Shares rose steadily through mid-December. It then took a turn south, in sync with general market weakness. That dip became the pattern's handle area.
The agriculture stock revived on Dec. 16 after the company gave higher full-year 2023 sales estimates of $14 billion, and a higher EPS estimate of about $13.50, in an SEC filing. The report projects flat 2023 sales in North America and Western Europe, and flat to 5% growth in South America.
The stock rose over 1% that day in the highest volume since the base started in late March, showing that institutions took notice by making big purchases. Options expirations also appeared to boost trading that day.
The stock held at its 21-day exponential moving average until it popped above it on Dec. 21, as industrial stocks saw strength.
The superior 94 Relative Strength Rating supports its strong performance.
The heavy equipment stock is up over 40% quarter to date and about 10% off its 52-week high. The relative strength line is at a new high, as indicated by the blue dot on the MarketSmith chart.
Strong EPS Growth Expected To Continue
Quarterly EPS growth has been positive but erratic, with 32% growth in Q3. A 17% drop in Q2 was due to a comparison against extraordinary year-earlier growth. Quarterly sales growth has been in the teens, except for the anomaly in Q2. The company posted record operating margin of 10.6% from pricing and improved product mix in Q3.
Analysts are projecting 14% EPS growth for the full 2022, and 13% in 2023. This continued growth builds off an impressive EPS number in 2021.
The return on equity (ROE) is above the 17% minimum sought in the CAN SLIM investing strategy. ROE measures profitability and how efficiently a company uses its assets.
Mutual funds own 64% of shares, while management owns a lofty 17%. That shows its executives have a lot at stake in the stock's performance.
ESG Responsible And Award Winning
AGCO is working to reduce greenhouse gases through carbon capture in soils, reducing carbon dioxide and using technology to innovate animal welfare during food production.
The company earned the 71st spot out of 500 companies ranked as America's Most Responsible Companies for 2023.
The heavy equipment company earned 10 prestigious awards in December, including Tractor of the Year 2023 and Farm Machine 2023.
