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4 Farm Equipment Stocks in Focus on Strong Industry Trends
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The Zacks Manufacturing - Farm Equipment industry is set to benefit from increased agricultural equipment demand to meet the food requirements of a growing population. Deere & Company (DE - Free Report) , Kubota (KUBTY - Free Report) , CNH Industrial (CNHI - Free Report) and Alamo Group (ALG - Free Report) are well-poised to capitalize on this demand, backed by their efforts to grow their product offerings.
Focus on revolutionizing agriculture with technology to make farming automated, easy to use and more precise across the production process is expected to be another major catalyst. These companies 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 in the industry produce turf and utility equipment, consisting of riding lawn equipment and walk-behind mowers, golf course equipment, utility vehicles, commercial mowing equipment, and garden tillers and snow throwers. Some participants manufacture irrigation equipment. Deere, CNH Industrial and AGCO are presently the top three global manufacturers of agricultural equipment (in that order).
Trends Shaping the Future of the Manufacturing - Farm Equipment Industry
Need for Food to Drive Demand for the Industry: Increased global demand for food, driven by population growth and rising standards of living, will continue to support the demand for agricultural equipment. In the United States, the agricultural machinery market is forecast to reach $39.56 billion in 2024 and is expected to grow to $53.7 billion in 2027, seeing a compound annual growth rate (CAGR) of 6.3% between 2024 and 2027. With farm sizes increasing, there is a greater need for labor, but escalating labor costs are prompting farmers to turn to mechanization. Additionally, subsidies on agricultural machinery purchases are enabling even small-scale farmers to invest in equipment.
Pricing, Cost-Cutting Actions to Boost Margins: 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 had led to higher lead times for deliveries. However, the industry players have recently been reporting improvements in the supply chain. The companies have been implementing pricing and cost-reduction actions, which are likely to help sustain margins.
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. The 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 Bright Prospects
The Zacks Manufacturing - Farm Equipment industry is part of the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #76, which places it in the top 30% 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 bright prospects for the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock market performance and valuation.
Industry Underperforms Sector and S&P 500
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 fallen 0.7% in the past 12 months against the S&P 500’s growth of 24.2%. The Industrial Products sector has gained 26.4% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward EV/EBITDA ratio, which is a commonly used multiple for valuing farm equipment stocks, we see that the industry is currently trading at 28.51X compared with the S&P 500’s 12.57X. The Industrial Products sector’s forward 12-month EV/EBITDA is 17.19X. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) Ratio (F12M)
Enterprise Value/EBITDA (EV/EBITDA) Ratio (F12M)
Over the last five years, the industry traded as high as 37.70X and as low as 15.77X, the median being 25.66X.
4 Manufacturing - Farm Equipment Stocks to Keep an Eye on
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 has invested in Chouette — an AgTech company that uses artificial intelligence to analyze images captured by cameras to detect diseases and tree vigor, and, based on the data analysis, creates the optimal spray volume of chemicals by unique algorithms. The company will continue to benefit from strong demand for its agricultural equipment. 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 Kubota’s earnings for fiscal 2024 has moved up 6% over the past 30 days and is pegged at $5.89. The company has a trailing four-quarter earnings surprise of 62.5%, on average. It has an estimated long-term earnings growth rate of 14.3% and currently sports a Zacks Rank #1 (Strong Buy).
Deere: The company is witnessing solid growth in order levels, which is expected to aid its top-line performance. 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 in precision agriculture will be a significant growth driver. Replacement demand, triggered by the need to upgrade old equipment, will continue to support its revenues. 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’s fiscal 2024 earnings has been unchanged over the past 30 days and is pegged at $27.41. DE has a trailing four-quarter earnings surprise of 17.1%, on average. Deere currently has an estimated long-term earnings growth rate of 9.7% and carries a Zacks Rank #3 (Hold).
Price & Consensus: DE
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 CNHI’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 has driven profitable growth in Europe, boosted demand for CNH Industrial's excavator portfolio and laid a foundation for electrification through the Eurocomach platform.
The Zacks Consensus Estimate for the Basildon, U.K.-based company’s ongoing-year earnings has been unchanged at $1.56 over the past 30 days. CNHI has a trailing four-quarter earnings surprise of 5%, on average. It currently carries a Zacks Rank #3.
Price & Consensus: CNHI
Alamo: Customer demand has been strong in the company’s end markets, which aided ALG in delivering the ninth consecutive quarterly record for sales and earnings in the fourth quarter of 2023. An enhanced supply-chain performance has also benefited sales through this period, while efforts to improve efficiency and lower costs have led to margin expansion. A strong backlog and increasing demand for the company’s industrial equipment from governmental agencies and contractors bode well for the forthcoming quarters. The acquisition of Timberwolf in October 2023 complements Alamo’s existing range of tree care products, and strengthens its presence in the U.K. and European forestry and tree care markets. ALG also acquired Royal Truck & Equipment, a leading producer of specialized highway safety equipment, including crash attenuator trucks. This marks the company’s foray into the highway safety equipment market, which has solid growth potential.
The Zacks Consensus Estimate for the Seguin, TX-based company’s ongoing-year earnings has been unchanged in 30 days’ time and is pegged at $13.17 per share. The consensus mark implies year-over-year growth of 15.9%. ALG has a trailing four-quarter earnings surprise of 11.8%, on average. It currently carries a Zacks Rank #3.
Price & Consensus: ALG
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4 Farm Equipment Stocks in Focus on Strong Industry Trends
The Zacks Manufacturing - Farm Equipment industry is set to benefit from increased agricultural equipment demand to meet the food requirements of a growing population. Deere & Company (DE - Free Report) , Kubota (KUBTY - Free Report) , CNH Industrial (CNHI - Free Report) and Alamo Group (ALG - Free Report) are well-poised to capitalize on this demand, backed by their efforts to grow their product offerings.
Focus on revolutionizing agriculture with technology to make farming automated, easy to use and more precise across the production process is expected to be another major catalyst. These companies 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 in the industry produce turf and utility equipment, consisting of riding lawn equipment and walk-behind mowers, golf course equipment, utility vehicles, commercial mowing equipment, and garden tillers and snow throwers. Some participants manufacture irrigation equipment. Deere, CNH Industrial and AGCO are presently the top three global manufacturers of agricultural equipment (in that order).
Trends Shaping the Future of the Manufacturing - Farm Equipment Industry
Need for Food to Drive Demand for the Industry: Increased global demand for food, driven by population growth and rising standards of living, will continue to support the demand for agricultural equipment. In the United States, the agricultural machinery market is forecast to reach $39.56 billion in 2024 and is expected to grow to $53.7 billion in 2027, seeing a compound annual growth rate (CAGR) of 6.3% between 2024 and 2027. With farm sizes increasing, there is a greater need for labor, but escalating labor costs are prompting farmers to turn to mechanization. Additionally, subsidies on agricultural machinery purchases are enabling even small-scale farmers to invest in equipment.
Pricing, Cost-Cutting Actions to Boost Margins: 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 had led to higher lead times for deliveries. However, the industry players have recently been reporting improvements in the supply chain. The companies have been implementing pricing and cost-reduction actions, which are likely to help sustain margins.
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. The 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 Bright Prospects
The Zacks Manufacturing - Farm Equipment industry is part of the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #76, which places it in the top 30% 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 bright prospects for the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock market performance and valuation.
Industry Underperforms Sector and S&P 500
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 fallen 0.7% in the past 12 months against the S&P 500’s growth of 24.2%. The Industrial Products sector has gained 26.4% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward EV/EBITDA ratio, which is a commonly used multiple for valuing farm equipment stocks, we see that the industry is currently trading at 28.51X compared with the S&P 500’s 12.57X. The Industrial Products sector’s forward 12-month EV/EBITDA is 17.19X. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) Ratio (F12M)
Enterprise Value/EBITDA (EV/EBITDA) Ratio (F12M)
Over the last five years, the industry traded as high as 37.70X and as low as 15.77X, the median being 25.66X.
4 Manufacturing - Farm Equipment Stocks to Keep an Eye on
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 has invested in Chouette — an AgTech company that uses artificial intelligence to analyze images captured by cameras to detect diseases and tree vigor, and, based on the data analysis, creates the optimal spray volume of chemicals by unique algorithms. The company will continue to benefit from strong demand for its agricultural equipment. 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 Kubota’s earnings for fiscal 2024 has moved up 6% over the past 30 days and is pegged at $5.89. The company has a trailing four-quarter earnings surprise of 62.5%, on average. It has an estimated long-term earnings growth rate of 14.3% and currently sports a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: KUBTY
Deere: The company is witnessing solid growth in order levels, which is expected to aid its top-line performance. 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 in precision agriculture will be a significant growth driver. Replacement demand, triggered by the need to upgrade old equipment, will continue to support its revenues. 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’s fiscal 2024 earnings has been unchanged over the past 30 days and is pegged at $27.41. DE has a trailing four-quarter earnings surprise of 17.1%, on average. Deere currently has an estimated long-term earnings growth rate of 9.7% and carries a Zacks Rank #3 (Hold).
Price & Consensus: DE
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 CNHI’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 has driven profitable growth in Europe, boosted demand for CNH Industrial's excavator portfolio and laid a foundation for electrification through the Eurocomach platform.
The Zacks Consensus Estimate for the Basildon, U.K.-based company’s ongoing-year earnings has been unchanged at $1.56 over the past 30 days. CNHI has a trailing four-quarter earnings surprise of 5%, on average. It currently carries a Zacks Rank #3.
Price & Consensus: CNHI
Alamo: Customer demand has been strong in the company’s end markets, which aided ALG in delivering the ninth consecutive quarterly record for sales and earnings in the fourth quarter of 2023. An enhanced supply-chain performance has also benefited sales through this period, while efforts to improve efficiency and lower costs have led to margin expansion. A strong backlog and increasing demand for the company’s industrial equipment from governmental agencies and contractors bode well for the forthcoming quarters. The acquisition of Timberwolf in October 2023 complements Alamo’s existing range of tree care products, and strengthens its presence in the U.K. and European forestry and tree care markets. ALG also acquired Royal Truck & Equipment, a leading producer of specialized highway safety equipment, including crash attenuator trucks. This marks the company’s foray into the highway safety equipment market, which has solid growth potential.
The Zacks Consensus Estimate for the Seguin, TX-based company’s ongoing-year earnings has been unchanged in 30 days’ time and is pegged at $13.17 per share. The consensus mark implies year-over-year growth of 15.9%. ALG has a trailing four-quarter earnings surprise of 11.8%, on average. It currently carries a Zacks Rank #3.
Price & Consensus: ALG