AGCO Corporation (AG) is a leading manufacturer and distributor of agricultural equipment and related replacement parts. The company offers a full product line of farm equipment through a wide network of more than 3,000 dealers and distributors in more than 140 countries across the world.
AGCO reported third quarter EPS of $1.04, up 35.1% y-o-y from $0.77 in the third quarter of 2007 driven by higher sales and strong operating performance across all the regions. Sales growth was strong, with every geographic region posting a double-digit increase.
The growth in commercial farm income and acreage is driving demand for high-horsepower tractors. Also, the company posted positive operating income in North America, driven by market strength and new product introduction, positive pricing environment, distribution improvements and expense controls.
Currently, AGCO's stock is trading at a P/E multiple of 5.5x our 2009 EPS estimate of $4.34, at a discount to industry multiple. We believe AGCO's 2008 earnings will benefit from higher prices, a return to profitability in North America, continuous strong growth in South America and EAME regions.
However, we believe that the appreciation of U.S. Dollar will dampen the International sales growth in next couple of quarters. We retain our Hold recommendation on the shares of AG. Our target price is $25.25, based on around 5.8x our 2009 EPS estimate of $4.34.
Read the full analyst report on AG
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