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4 Farm Equipment Stocks to Watch Despite Industry Concerns
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Weak commodity prices and low farm income will continue to impact farmers’ purchasing decisions and weigh on the near-term outlook of the Zacks Manufacturing - Farm Equipment industry. Demand will eventually increase, driven by the requirement for agricultural equipment to feed a growing population.
Players like Deere (DE - Free Report) , Kubota (KUBTY - Free Report) , CNH Industrial (CNH - Free Report) and Lindsay (LNN - Free Report) are well-poised to benefit from this demand by expanding their product offerings. The industry’s emphasis on revolutionizing agriculture with technology to make farming automated is expected to be a major catalyst. Players in the industry are thus investing heavily in upping their technology game.
About the Industry
The Zacks Manufacturing - Farm Equipment industry comprises companies that manufacture agricultural equipment. These equipment include tractors, combines, cotton pickers and harvesting equipment; tillage, seeding and application equipment, consisting of sprayers, nutrient management and soil preparation machinery; and hay and forage equipment, comprising self-propelled forage harvesters and attachments, balers and mowers. Some companies produce turf and utility equipment, consisting of riding lawn equipment and walk-behind mowers, golf course equipment, utility vehicles, commercial mowing equipment, garden tillers and snow throwers. Some participants also manufacture irrigation equipment.The companies sell their equipment and related parts through independent retail dealer networks and retail outlets. This industry caters to the agriculture, golf and landscape markets.
Trends Shaping the Future of the Manufacturing - Farm Equipment Industry
Low Farm Income Act as Woe: Deteriorating agricultural commodity prices, high interest rates and production costs have affected farmer sentiment. This, in turn, is weighing on agricultural equipment demand. Wheat, corn and soybean prices are likely to decline due to high inventory levels and expectations of increased supply. Demand in China for soybeans is expected to go down due to the government's efforts to reduce and substitute the use of soybeans in animal feed to decrease reliance on imports. The USDA projects a net farm income of $140 billion for 2024, indicating a decline of 4.4% from that reported in 2023. Its earlier forecast had indicated a steep 25.5% drop. Farm income decreased 19.5% year over year in 2023. The shift in estimates is attributed to a stronger-than-expected performance in the livestock sector and lower production expenses. Net cash farm income is expected to decrease 7.2% to $154.1 billion in 2024. Total crop receipts will decline 10% to $249 billion due to lower receipts for corn and soybeans, as lower prices for both due to an increase in supply should negate gains from higher sales volumes. Even though lower interest rates and easing of production costs will provide some respite to farmers, the projected low farm income will continue to influence farmers’ investment decision-making until conditions stabilize.
High Costs & Supply-Chain Issues are Worrisome: The industry has not been immune to the rampant cost inflation prevailing in the sector. Constraints on the availability of raw materials, labor and trucking resources have led to higher lead times for deliveries.
Need for Food to Drive Industry Demand: Despite the volatility in commodity prices, agricultural equipment demand will be supported by increased global demand for food, stemming from population growth and an increasing proportion of the population aspiring for better living standards. In the United States, the agricultural machinery market is forecast to reach $39.56 billion in 2024. It is expected to reach $53.7 billion in 2027, seeing a compound annual growth rate (CAGR) of 6.3% between 2024 and 2027. Farm size has been on the rise in the United States, which calls for more laborers. Given the escalation in labor costs every year, farmers are resorting to farming equipment to replace labor.
Technologically Advanced Machinery Continues to Gain Popularity: Customers are increasingly relying on advanced technology, smart farming solutions and mechanization to run their operations. Thus, the industry participants are enhancing investments in launching products equipped with advanced technologies and features to keep up with customers' evolving demands. Precision agriculture technology is expected to be a key catalyst, as it enables farmers to increase yield with reduced input costs and sustainability benefits.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Manufacturing - Farm Equipment industry is part of the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #227, which places it at the bottom 10% of more than 250 Zacks industries. The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dim prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since the beginning of this year, the industry’s earnings estimates for the current year have gone down 15%.
Despite the bleak near-term prospects of the industry, we will present a few Manufacturing - Farm Equipment stocks that can be retained in one’s portfolio. It is worth taking a look at the industry’s stock market performance and valuation picture before that.
Industry Versus Broader Market
The Zacks Manufacturing - Farm Equipment industry has underperformed its sector and the Zacks S&P 500 composite over the past 12 months. Stocks in this industry have declined 0.1% in the past 12 months against the S&P 500’s growth of 8.9%. The Industrial Products sector has gained 1% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing farm equipment stocks, we see that the industry is currently trading at 32.08X compared with the S&P 500’s 14.28X. The Industrial Products sector’s trailing 12-month EV/EBITDA is 19.30X. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) Ratio (TTM)
Enterprise Value/EBITDA (EV/EBITDA) Ratio (TTM)
Over the last five years, the industry traded as high as 37.70X and as low as 18.60X, the median being 26.63X.
4 Manufacturing - Farm Equipment Stocks to Keep an Eye on
Deere: The company is witnessing solid growth in order levels, which is expected to aid its top-line performance. Replacement demand, triggered by the need to upgrade old equipment, will continue to support its revenues. DE will continue to benefit from its focus on launching products equipped with advanced technologies and features that provide it with a competitive edge. Efforts to expand precision agriculture will be a significant growth driver. Considering that Deere also makes construction equipment, it will benefit from strong demand in the residential and non-residential construction markets. DE’s cost-control actions have been supporting margins despite the persistent inflationary pressures.
The Zacks Consensus Estimate for the Moline, IL-based company has a trailing four-quarter earnings surprise of 11.8%, on average. Deere has an estimated long-term earnings growth rate of 12% and carries a Zacks Rank #3 (Hold).
Kubota: The company has formulated its long-term vision, “GMB2030.” It has been progressing with initiatives to realize smart agriculture with the aim of providing solutions that will improve the productivity and safety of food. Agricultural machine automation is one of the key pillars of these initiatives. The company earlier invested in Chouette — an AgTech company that uses artificial intelligence to analyze images captured by cameras to detect diseases and tree vigor, and creates the optimal spray volume of chemicals by unique algorithms based on the data analysis. Kubota recently acquired Bloomfield Robotics — a U.S. startup company that uses image analysis and AI technology to determine optimal specialty crop harvest timing and provide yield prediction services. With this move, KUBTY will quickly develop and deliver solutions to the specialty crop market. Demand for its construction equipment will be supported by increased infrastructure spending in the United States. Its prospects look promising in other parts of the world.
The Zacks Consensus Estimate for Osaka, Japan-based company’s fiscal 2024 earnings has moved up 15.7% over the past 60 days. The company has a trailing four-quarter earnings surprise of 54.2%, on average. It currently has an estimated long-term earnings growth rate of 2.9% and a Zacks Rank #3.
Price & Consensus: KUBTY
CNH Industrial: The company is well-poised for growth, backed by its state-of-the-art and productivity-boosting agricultural product portfolio. It is developing several products and technologies across all segments to remain on par with the latest technological advancements and emission-control procedures. The acquisition of Raven Industries expanded CNH’s portfolio of precision agriculture technology offerings, and accelerated the development of advanced machine automation and autonomous agriculture technology. CNH Industrial is solidifying its position in precision technology with a sales target of more than $1 billion in 2024, and strategic investments in companies like Stout Industrial Technology and EarthOptics. In the construction segment, the acquisition of Sampierana drove profitable growth in Europe, boosted the demand for CNH Industrial's excavator portfolio and laid a foundation for electrification through the Eurocomach platform. CNH’s cost-reduction programs focused on product costs and selling, general and administrative expenses will help sustain margins.
The Basildon, U.K.-based company has a trailing four-quarter earnings surprise of 7.3%, on average. CNH currently carries a Zacks Rank #3.
Price & Consensus: CNH
Lindsay: The company is well-poised to gain from demand for its Road Zipper System. Its Road Zipper System is a highly differentiated product that delivers significant advantages by addressing key infrastructure needs, such as reducing congestion, lowering carbon emission, improving commuter travel time and increasing driver safety. Road Zipper Systems are gaining popularity globally for their faster implementation and lower costs than constructing new lanes. The company signed a multi-year supply agreement to provide Zimmatic irrigation systems and FieldNET remote management and scheduling technology in the Middle East and North Africa region. The project is valued at more than $100 million in revenues. Pivot shipments for this project will commence in fourth-quarter fiscal 2024 and are scheduled to continue until 2025.
The Zacks Consensus Estimate for the Omaha, NE-based company’s ongoing-year earnings has moved up 2.4% over the past 60 days. LNN has a trailing four-quarter earnings surprise of 20%, on average. It currently carries a Zacks Rank #3.
Price & Consensus: LNN
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Weak commodity prices and low farm income will continue to impact farmers’ purchasing decisions and weigh on the near-term outlook of the Zacks Manufacturing - Farm Equipment industry. Demand will eventually increase, driven by the requirement for agricultural equipment to feed a growing population.
Players like Deere (DE - Free Report) , Kubota (KUBTY - Free Report) , CNH Industrial (CNH - Free Report) and Lindsay (LNN - Free Report) are well-poised to benefit from this demand by expanding their product offerings. The industry’s emphasis on revolutionizing agriculture with technology to make farming automated is expected to be a major catalyst. Players in the industry are thus investing heavily in upping their technology game.
About the Industry
The Zacks Manufacturing - Farm Equipment industry comprises companies that manufacture agricultural equipment. These equipment include tractors, combines, cotton pickers and harvesting equipment; tillage, seeding and application equipment, consisting of sprayers, nutrient management and soil preparation machinery; and hay and forage equipment, comprising self-propelled forage harvesters and attachments, balers and mowers. Some companies produce turf and utility equipment, consisting of riding lawn equipment and walk-behind mowers, golf course equipment, utility vehicles, commercial mowing equipment, garden tillers and snow throwers. Some participants also manufacture irrigation equipment.The companies sell their equipment and related parts through independent retail dealer networks and retail outlets. This industry caters to the agriculture, golf and landscape markets.
Trends Shaping the Future of the Manufacturing - Farm Equipment Industry
Low Farm Income Act as Woe: Deteriorating agricultural commodity prices, high interest rates and production costs have affected farmer sentiment. This, in turn, is weighing on agricultural equipment demand. Wheat, corn and soybean prices are likely to decline due to high inventory levels and expectations of increased supply. Demand in China for soybeans is expected to go down due to the government's efforts to reduce and substitute the use of soybeans in animal feed to decrease reliance on imports. The USDA projects a net farm income of $140 billion for 2024, indicating a decline of 4.4% from that reported in 2023. Its earlier forecast had indicated a steep 25.5% drop. Farm income decreased 19.5% year over year in 2023. The shift in estimates is attributed to a stronger-than-expected performance in the livestock sector and lower production expenses. Net cash farm income is expected to decrease 7.2% to $154.1 billion in 2024. Total crop receipts will decline 10% to $249 billion due to lower receipts for corn and soybeans, as lower prices for both due to an increase in supply should negate gains from higher sales volumes. Even though lower interest rates and easing of production costs will provide some respite to farmers, the projected low farm income will continue to influence farmers’ investment decision-making until conditions stabilize.
High Costs & Supply-Chain Issues are Worrisome: The industry has not been immune to the rampant cost inflation prevailing in the sector. Constraints on the availability of raw materials, labor and trucking resources have led to higher lead times for deliveries.
Need for Food to Drive Industry Demand: Despite the volatility in commodity prices, agricultural equipment demand will be supported by increased global demand for food, stemming from population growth and an increasing proportion of the population aspiring for better living standards. In the United States, the agricultural machinery market is forecast to reach $39.56 billion in 2024. It is expected to reach $53.7 billion in 2027, seeing a compound annual growth rate (CAGR) of 6.3% between 2024 and 2027. Farm size has been on the rise in the United States, which calls for more laborers. Given the escalation in labor costs every year, farmers are resorting to farming equipment to replace labor.
Technologically Advanced Machinery Continues to Gain Popularity: Customers are increasingly relying on advanced technology, smart farming solutions and mechanization to run their operations. Thus, the industry participants are enhancing investments in launching products equipped with advanced technologies and features to keep up with customers' evolving demands. Precision agriculture technology is expected to be a key catalyst, as it enables farmers to increase yield with reduced input costs and sustainability benefits.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Manufacturing - Farm Equipment industry is part of the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #227, which places it at the bottom 10% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dim prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since the beginning of this year, the industry’s earnings estimates for the current year have gone down 15%.
Despite the bleak near-term prospects of the industry, we will present a few Manufacturing - Farm Equipment stocks that can be retained in one’s portfolio. It is worth taking a look at the industry’s stock market performance and valuation picture before that.
Industry Versus Broader Market
The Zacks Manufacturing - Farm Equipment industry has underperformed its sector and the Zacks S&P 500 composite over the past 12 months. Stocks in this industry have declined 0.1% in the past 12 months against the S&P 500’s growth of 8.9%. The Industrial Products sector has gained 1% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing farm equipment stocks, we see that the industry is currently trading at 32.08X compared with the S&P 500’s 14.28X. The Industrial Products sector’s trailing 12-month EV/EBITDA is 19.30X. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) Ratio (TTM)
Enterprise Value/EBITDA (EV/EBITDA) Ratio (TTM)
Over the last five years, the industry traded as high as 37.70X and as low as 18.60X, the median being 26.63X.
4 Manufacturing - Farm Equipment Stocks to Keep an Eye on
Deere: The company is witnessing solid growth in order levels, which is expected to aid its top-line performance. Replacement demand, triggered by the need to upgrade old equipment, will continue to support its revenues. DE will continue to benefit from its focus on launching products equipped with advanced technologies and features that provide it with a competitive edge. Efforts to expand precision agriculture will be a significant growth driver. Considering that Deere also makes construction equipment, it will benefit from strong demand in the residential and non-residential construction markets. DE’s cost-control actions have been supporting margins despite the persistent inflationary pressures.
The Zacks Consensus Estimate for the Moline, IL-based company has a trailing four-quarter earnings surprise of 11.8%, on average. Deere has an estimated long-term earnings growth rate of 12% and carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: DE
Kubota: The company has formulated its long-term vision, “GMB2030.” It has been progressing with initiatives to realize smart agriculture with the aim of providing solutions that will improve the productivity and safety of food. Agricultural machine automation is one of the key pillars of these initiatives. The company earlier invested in Chouette — an AgTech company that uses artificial intelligence to analyze images captured by cameras to detect diseases and tree vigor, and creates the optimal spray volume of chemicals by unique algorithms based on the data analysis. Kubota recently acquired Bloomfield Robotics — a U.S. startup company that uses image analysis and AI technology to determine optimal specialty crop harvest timing and provide yield prediction services. With this move, KUBTY will quickly develop and deliver solutions to the specialty crop market. Demand for its construction equipment will be supported by increased infrastructure spending in the United States. Its prospects look promising in other parts of the world.
The Zacks Consensus Estimate for Osaka, Japan-based company’s fiscal 2024 earnings has moved up 15.7% over the past 60 days. The company has a trailing four-quarter earnings surprise of 54.2%, on average. It currently has an estimated long-term earnings growth rate of 2.9% and a Zacks Rank #3.
Price & Consensus: KUBTY
CNH Industrial: The company is well-poised for growth, backed by its state-of-the-art and productivity-boosting agricultural product portfolio. It is developing several products and technologies across all segments to remain on par with the latest technological advancements and emission-control procedures. The acquisition of Raven Industries expanded CNH’s portfolio of precision agriculture technology offerings, and accelerated the development of advanced machine automation and autonomous agriculture technology. CNH Industrial is solidifying its position in precision technology with a sales target of more than $1 billion in 2024, and strategic investments in companies like Stout Industrial Technology and EarthOptics. In the construction segment, the acquisition of Sampierana drove profitable growth in Europe, boosted the demand for CNH Industrial's excavator portfolio and laid a foundation for electrification through the Eurocomach platform. CNH’s cost-reduction programs focused on product costs and selling, general and administrative expenses will help sustain margins.
The Basildon, U.K.-based company has a trailing four-quarter earnings surprise of 7.3%, on average. CNH currently carries a Zacks Rank #3.
Price & Consensus: CNH
Lindsay: The company is well-poised to gain from demand for its Road Zipper System. Its Road Zipper System is a highly differentiated product that delivers significant advantages by addressing key infrastructure needs, such as reducing congestion, lowering carbon emission, improving commuter travel time and increasing driver safety. Road Zipper Systems are gaining popularity globally for their faster implementation and lower costs than constructing new lanes. The company signed a multi-year supply agreement to provide Zimmatic irrigation systems and FieldNET remote management and scheduling technology in the Middle East and North Africa region. The project is valued at more than $100 million in revenues. Pivot shipments for this project will commence in fourth-quarter fiscal 2024 and are scheduled to continue until 2025.
The Zacks Consensus Estimate for the Omaha, NE-based company’s ongoing-year earnings has moved up 2.4% over the past 60 days. LNN has a trailing four-quarter earnings surprise of 20%, on average. It currently carries a Zacks Rank #3.
Price & Consensus: LNN