Agriculture machinery company Agco Corp. (AG) beat estimates in its latest earnings report. But Zacks senior analyst Marion Ricchio explains why he is keeping his recommendation on AG a Hold:
Agco reported second quarter EPS [earnings per share] of $0.67, well above our estimate at $0.56, due to better-than-expected profitability in Brazil and a lower interest expense. The South American rebound continued for the third consecutive quarter, with sales up 60%. For the remainder of FY07, we expect a 35% increase in South American sales amid an upward rise in soybean prices.
Given the second quarter earnings surprise, continued debt reduction, favorable currency translation, a further rebound in Brazil, and double-digit EPS growth in the EAME [Europe, Africa and Middle East] region, we are raising our FY07 EPS estimate to $1.77 from $1.65. Investors should hold shares of AG in their portfolio.
The EAME represents the single-largest market for AG and hence, we are watching the foreign exchange market carefully for signs of a potential trend change. Fortunately, we expect the Euro to strengthen further against the U.S. dollar, which should help prop revenue growth for the remainder of FY07. But if the U.S. dollar rallies from current levels, it would take away currency translation gains and make comparables extremely challenging heading into FY08.
Read the full analyst report on AG
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