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wfm

Saturday, August 9, 2014

AGCO Corporation (NYSE:AGCO): An opportunity to pick up a global leader in agricultural equipment at a discount

Summary
AGCO Corporation (AGCO) is a global manufacturer of agricultural equipment and related replacement parts.

AGCO's products :
  
 tractors  combines
 self-propelled sprayers  hay tools
 forage equipment  grain storage 
 protein production systems  grain handling equipment systems

AGCO's major brands known for their durability and performance:
  • Challenger - tracked tractors & other high performance agricultural machines
  • Fendt - high-tech tractors and harvesting machines
  • Massey Ferguson - globally recognized tractors customized for various harvesting conditions
  • Valtra - tractor manufacturer based in Finland with a growing reputation in South America
Opportunity
The current opportunity to buy AGCO shares  comes after a significant decline in their shares following their second quarter earnings results.  The near term forecasts were lowered due to the high crop yields last year and resulting lower prices of commodities.  This decline in crop prices may lead to farmers scaling back on their equipment purchases in the near term.  However, the long term outlook for AGCO is positive when considering the agricultural need to support a growing world population.

The table below shows the earnings per share for AGCO for the last several years.








At its current price of $48.80, AGCO is trading at a 3 year average PE ratio of 8.48.  Clearly this is well below most of the stocks you will find in the market, especially of AGCO's quality.

TTM return on assets and return on equity:

ROA ROEQ
6.38% 15.72%


 AGCO is also cheap based on the current price to cash flow number.
PE HIGH LAST 5 YRS PE LOW LAST 5 YRS
P/B PRICE TO SALES PRICE TO CF
22.43 7.23
1.20 0.43 5.89

 
MARKET VALUE INT VALUE
 $          4,583,247,200.00  $          26,683,856,502.24
 AGCO is trading well below intrinsic value.
The intrinsic value number was derived using the following formula based on numbers from the last 12 months:


I believe the decline in the stock seen in the graph below is an overreaction providing a good entry opportunity for the stock:
 

 In summary, AGCO currently provides a good opportunity for a long term value investor looking for a stock trading at a significant discount to its intrinsic value.