AGCO Corp: Zacks’ Bear of the Day Play

AGCO Corp (AGCO – Analyst Report) may have beaten the Zacks Consensus Estimate in each of the last three quarters, but estimates have moved lower recently. AGCO a Zacks Rank #5 (Strong Sell), and it is the Bear of the Day.

Company Description

AGCO Corporation manufactures and distributes agricultural equipment and related replacement parts worldwide. It offers tractors and combines. AGCO Corporation was founded in 1990 and is headquartered in Duluth, Georgia.

Guiding Lower

The company guided lower on July 29 as they expected sales to be between $10.1B -$10.3B compared to the $10.34B estimate. At that time the company also noted that EPS for FY14 would be $5.00.

Recent Earnings Reports

The most recent report saw AGCO come in ahead of the Zacks Consensus Estimate. The company reported $1.77 vs. the $1.68 estimate fro a beat of $0.09 or 5.4% positive earnings surprise. The guidance, however, disappointed Wall Street and the stock sold off by 5.2% in the session following the release.

Valuation

The valuation for is attractive, but it might get better down the road. The stock is trading at 9x trailing PE compared to a 16x industry average. The forward PE shows less of a discount at 10x compared to 16x for the industry average, but not that much. The other estimates all show AGCO trading at a discount to the industry average

Why the discount? Analysts expect AGO to post -7.3% revenue growth this year and another decline of -3.2% next year. That does not compare favorably to -2% this yea and growth of 4.8% next year for the industry average. The earnings picture is even worse, but let’s use the chart for that one.

AGCO Chart

The price and consensus chart is a very helpful tool developed by Zacks. It shows how the earnings estimates help guide the stock, so as estimates move higher, the stock price generally follows along. AGCO follows this pattern with a defined trend lower in the stock that moves in lock step with the 2015 Zacks Consensus Estimate. Investors would be wise to wait for estimates to start moving higher before investing in this stock.

Follow Brian Bolan on twitter at @BBolan1

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

Full Disclosure: The author hold puts on PBPB

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