AGCO Corporation

Date: June 30, 2024.

Company’s Overview

AGCO Corporation (AGCO), an American agricultural equipment manufacturer headquartered in Georgia, USA, designs, produces, and distributes tractors, combines, hay tools, and other agricultural machinery used globally through a network of dealerships.

Competition

AGCO Corporation operates within the Agricultural and Farm Machinery industry, which is composed by:

Revenue Segments

The Company’s net sales proportions by segment for the most recent quarterly report are composed by:

The Company’s Comparison of total net revenues by segment from 2019 till 2023:

Related Risks

AGCO Corporation faces a challenging risk landscape. The cyclical nature of agriculture exposes them to boom-and-bust periods depending on factors like commodity prices and weather. Geopolitical tensions can disrupt their global supply chains and increase costs. A competitive landscape with established players like John Deere and emerging ones demands continuous innovation. Currency fluctuations and rising input costs for materials and labor can further squeeze profitability. Additionally, keeping pace with advancements in precision agriculture and autonomous farming technologies presents a hurdle.

Financial Performance

Revenues

Revenues from 2020 to 2023:

• AGCO’s annual revenue for 2023 was $14.41B, a 13.92% increase from 2022.
• AGCO’s annual revenue for 2022 was $12.65B, a 13.58% increase from 2021.
• AGCO’s annual revenue for 2021 was $11.14B, a 21.73% increase from 2020.
• AGCO’s annual revenue for 2020 was $9.15B, a 1.2% increase from 2019.

The yearly revenue from 2009 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Net Income

Net Income from 2020 to 2023:

• AGCO’s annual net income for 2023 was $1.17B, a 31.68% increase from 2022.
• AGCO’s annual net income for 2022 was $0.89B, a -0.82% decrease from 2021.
• AGCO’s annual net income for 2021 was $0.9B, a 110.02% increase from 2020.
• AGCO’s annual net income for 2020 was $0.43B, a 241.13% increase from 2019.

The yearly net income from 2009 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

EPS

EPS from 2020 to 2023:

• AGCO’s annual EPS for 2023 was $15.66B, a 31.38% increase from 2022.
• AGCO’s annual EPS for 2022 was $11.92B, a -0.08% decrease from 2021.
• AGCO’s annual EPS for 2021 was $11.93B, a 109.67% increase from 2020.
• AGCO’s annual EPS for 2020 was $5.69B, a 246.95% increase from 2019.

The yearly EPS from 2009 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Free Cash Flow

Free Cash Flow from 2020 to 2023:

• AGCO’s annual free cash flow for 2023 was $0.59B, a 30.03% increase from 2022.
• AGCO’s annual free cash flow for 2022 was $0.45B, a 15.24% increase from 2021.
• AGCO’s annual free cash flow for 2021 was $0.39B, a -37.7% decrease from 2020.
• AGCO’s annual free cash flow for 2020 was $0.63B, a 48.31% increase from 2019.

The yearly free cash flow from 2009 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Financial Strength

Shares Outstanding

In November 2023, ACGO’s board authorised a share repurchase program of up to $53M of its common shares.

A positive aspect is the decrease in outstanding shares. By reducing shares by almost 19% since 2009, AGCO has limited shareholder value dilution. This is a significant improvement compared to companies that significantly increase shares outstanding, potentially reducing the value of existing shares.

Assets/Liabilities

Their asset-to-liability ratio of 1.55 is good, indicating they have enough assets to cover their liabilities.

Current Ratio

Additionally, their current ratio of 1.99 signifies a comfortable surplus of current assets over current liabilities, ensuring they can meet short-term obligations.

Net Debt

AGCO’s net debt of $982 million is manageable. It’s not a substantial burden, and the decrease of nearly 12.27% since 2019 reflects a commitment to reducing debt. Furthermore, this debt represents a relatively small portion (11.29%) of their total liabilities, further strengthening their financial position.

Valuation

Based on the analysis performed, AGCO’s price is undervalued, showing a fair price of $147 (As at 21/05/2024). As key metrics, we considered 10% Required Rate of Return (RRR) and 20% margin of safety. Note that in the analysis we take into consideration also the cash and cash equivalents and the total debt.

The company has received a range of ratings from buy to sell. Specifically, there were 5 buy, 2 overweight, 6 hold, 1 underweight and 0 sell ratings. The consensus rating leans towards overweight.

AGCO Corporation presents a strong case for investors. They’ve delivered impressive growth, increasing their net revenue by 59% since 2019. This positive trend extends to profitability, with a 10-year CAGR exceeding 11% for both net income (11.07%) and free cash flow (15.4%). Additionally, they’ve reduced outstanding shares by nearly 19%, boosting earnings per share (EPS) with a 10-year CAGR of 13.64%. This translates to strong margins that outperform industry averages across the board (gross margin: 26.36% vs industry median: 23.88%, operating margin: 11.43% vs industry median: 9.47%, net margin: 7.9% vs industry median: 7.11%).

Financially, AGCO is in good shape. Their asset/liability ratio (1.55) and current ratio (1.99) indicate a comfortable ability to manage debt and meet short-term obligations. The manageable net debt of $982 million, further reduced by 12.27% since 2019, strengthens their financial position. Furthermore, their return on invested capital (ROIC) of 18.59% significantly surpasses the 9% threshold, demonstrating efficient use of capital.

Adding to the appeal, AGCO appears undervalued. With a P/E ratio of 7.44 compared to the industry median of 15.54, the stock price might not fully reflect the company’s strong fundamentals. The low dividend payout ratio (1.05% with total dividends paid consisting of 14% of the free cash flow) suggests ample room for future dividend growth or strategic investments.

Overall, AGCO is a Good investment opportunity, ranking at 82%. Their impressive growth (59% revenue increase since 2019, double-digit CAGR for net income and free cash flow), strong financial health (good asset/liability and current ratios, manageable net debt reduced by 12.27%, high ROIC), and potential undervaluation (P/E ratio significantly lower than industry median) make them an attractive option for investors seeking a well-positioned player in the agricultural equipment industry.

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Disclaimer

Please note that I am not a licensed financial advisor and the information provided here should not be construed as financial advice. I am simply sharing my understanding of the topics based on my research and personal experiences. It is always advisable to consult with a qualified financial advisor before making any investment decisions.

The information I provide is based on publicly available sources and my own interpretations. I strive to provide accurate and up-to-date information, but I cannot guarantee the correctness or completeness of the information.

Any opinions expressed here are my own and do not necessarily reflect the views of any other individual or organisation.

Please use your own judgement and conduct your own research before making any investment decisions.