A Deere In The Spotlight

Investors are understandably nervous about 2023, as more and more companies are pointing to weakening trends and a more sober outlook for the next year. Heavy machinery is no exception, with investors concerned that strong backlogs will give way to weaker order trends and that a recent run of outperformance over other industrials will come to an end.

Deere & Company (NYSE:DE) has been stronger than most over the last two years, driven not only by strong demand for agricultural and construction machinery, but also self-help like growing precision ag and tech-driven ag businesses and margin improvement/efficiency efforts that have led to higher full-cycle margin projections. Valuation is not particularly cheap here, but if Deere can provide a strong beat-and-raise quarter with guidance to double-digit growth in FY’23, Deere could continue to outperform a while longer on the basis of its differentiated growth profile.

 Click the link to continue: 

A Deere In The Spotlight

Komatsu Offers More Than An Upswing In Mining

As often happens with companies that serve deeply cyclical end-markets, the timing and magnitude of the swings in Komatsu's (OTCPK:KMTUY) end-markets have defied expectations. While improving construction and mining markets have been part of the Komatsu story for a while now, the strength of the recoveries (especially in mining) has exceeded expectations, as has Komatsu's operating leverage and execution.

With major mining companies only starting to reinvest in equipment and plenty of room to grow in automation-driven investments, I believe Komatsu could still offer some upside from here. The shares aren't cheap on a free cash flow basis, but that's not all that unusual and a forward multiple in line with long-term averages suggests 10% more upside from here with the possibility of further upward revisions.

Read more here:
Komatsu Offers More Than An Upswing In Mining

Will Precision Ag Take American Vanguard To A New Level?

For what it is, American Vanguard (NYSE:AVD) is a good company. This small agricultural chemicals company does not have the R&D resources to compete with companies like Syngenta (NYSE:SYT), Bayer (OTCPK:BAYRY), or BASF (OTCQX:BASFY) in novel crop protection ingredients, nor the scale to compete with companies like ChemChina in large-scale generic crop protection, but it does have a solid record of acquiring and marketing niche products for an array of row crops, fruits, vegetables, and cotton.

The challenge I have with American Vanguard is when the market runs ahead of itself by overestimating what the company can be, as has happened in the past when investors thought the corn boom established a "new normal" for sales or when Zika would lead to a major sales opportunity for its mosquitocide. Now I have similar concerns about SIMPAS, the company's entry into precision agriculture. While the SIMPAS system seems legit, I think the sales effort will be challenging, and I think the company will always be challenged by its lack of proprietary R&D capabilities. As I think $15 to $17 is a reasonable estimate of fair value, I don't see all that much upside today.

Read the full article here:
Will Precision Ag Take American Vanguard To A New Level?

Seeking Alpha: Is AGCO Corp. Washed Out Enough To Own?

The rise and fall of the agriculture equipment cycle has gotten plenty of attention, but I don't think it's all that widely appreciated that AGCO (AGCO) has done reasonably well over that cycle - beating Deere (DE) over the past two years and keeping pace over the last year (and beating CNH Industrial (CNHI)). More recently, it seems that some on the sell side have favored AGCO as a "better house in a bad neighborhood" play, but the company is still facing challenges, with share loss in Brazil and weaker relative margins, and AGCO's recent guidance was not particularly strong. The valuation on these shares does look interesting, but investors need to be aware that they're swimming against the tide right now.

Follow this link for more:
Is AGCO Corp. Washed Out Enough To Own?

Seeking Alpha: Titan Machinery Needs More Than Short Covering

It's always worth remembering that there is more to a stock's performance than just the reported financials. In the case of Titan Machinery (TITN), fiscal fourth quarter results were not all that greater and there are still real issues with the business model. Investors liked what they heard about cost-cutting in the next year, though, and with Yahoo! Finance showing about one-third of the float held short, it looks like a short squeeze helped catapult the shares last week.

I saw value up to the high teens on a cash flow-basis last time I wrote, and I still see a similar fair value after this latest quarter. I don't like the model, though, and I think investors have better options for playing bullish outlooks for agriculture and/or construction equipment demand.

Continue here:
Titan Machinery Needs More Than Short Covering

Seeking Alpha: My Fears About Titan Machinery Seem To Be Coming True

Titan Machinery (TITN) is showing why investors do well to be cautious about debt-fueled roll-up stories, particularly in cyclical markets where many of the major demand factors are out of anybody's control. As cash receipts for farmers are looking shakier and farmland values are starting to retreat, the outlook for ag equipment demand in 2014 is getting shakier. Unfortunately, Titan operates a model that requires merchandise to keep moving, as interest expense is nearly 10% of gross profits.

With another disappointment comes another downward revision and, I would assume, another round of price target cuts on the sell-side. While Titan had a lot of enthusiastic cheerleaders on the sell-side making "things aren't so bad" and "things will get better" calls not so long ago, sentiment has turned more negative. Even though I have a natural streak of contrariety that encourages me to swim against the tide, I'd be careful in approaching this name as an ag cycle that definitely outperformed to the up-side could very well also go lower than expected on the down-side.

Continue reading here:
My Fears About Titan Machinery Seem To Be Coming True

Seeking Alpha: Is Titan Bottoming Out?

It's been a rough year for most companies that have much to do with the agriculture, earthmoving, or mining vehicle industries. Deere (DE) is up a little, Caterpillar (CAT) is down a little, Joy Global (JOY) is down a little more and the two Titans (Titan Machinery (TITN) and Titan International (TWI)) are down even more. Although AGCO (AGCO) and CNH Global (CNH) are up pretty strongly over the past year, they're more the exception and perhaps benefiting from less reliance on North America.

In any case, Titan International is the stock I'm interested in for this article. This company has had an up-and-down history, with management having something of a history of "I confess … it's not our fault!" excuses for operational issues, but also a cogent plan for building strong share in a variety of growth markets like Eastern Europe and Brazil. Calling a bottom in a stock always runs the risk of making you look stupid later on, and I do see risks that the ag and mining markets could get worse. Even so, unless Titan seriously drops the ball and actually loses share over the coming decade, I think the shares are undervalued today.

Read the full article here:
Is Titan Bottoming Out?

Seeking Alpha: Titan Machinery - Is This Roll-Up Rolling Over?

I've had my doubts about Titan Machinery (TITN) for a while now, as I've seen more than a few debt-funded equipment dealership roll-up stories in the past, and they often don't end well. To that end, the last year and two years have been pretty dicey for buy-and-hold investors, as concerns about the health of the agricultural equipment market and the potential for a rebound in construction equipment demand weigh on sentiment.

As it stands today, I have very mixed feelings about this business. I do have some concerns about the health of the ag equipment sector in the coming years, and I have real doubts about Titan's ability to leverage CNH Global (CNH) construction equipment into a viable construction equipment dealership business. On the other hand, it seems harsh to say that the company creates no value at all, and it trades only about 5% above tangible book value. I'd rather play a bullish (or bullish relative to consensus) call on agriculture and/or construction through names like Deere (DE), Caterpillar (CAT), Kubota (KUBTY.PK), or Komatsu (KMTUY.PK), but Titan's underperformance makes it hard to be loudly bearish on the name.

Please follow this link to continue:
Titan Machinery - Is This Roll-Up Rolling Over?

Investopedia: Easy To Like Everything About Kubota Except The Price

There's a lot working in Kubota's (OTC:KUBTY) favor these days. The lower value of the yen makes its products cheaper, while rising incomes across Asia make its agricultural equipment more attainable. Add to that a recovery in the U.S. housing market (where the company sells a lot of lawn equipment) and a stated goal to expand the dry land business, and there are multiple attractive growth drivers. The problem? It's just not possible to run an attractive valuation on a discounted cash flow basis, and I can't reconcile the idea of paying a 40% to 100% premium (in forward EV/EBITDA terms) for Kubota compared to Cummins (NYSE:CMI), Deere (NYSE:DE), AGCO (Nasdaq:AGCO), or CNH (NYSE:CNH).

Please follow the link for more:
http://www.investopedia.com/stock-analysis/082213/easy-everything-about-kubota-except-price-kubty-de-agco-cnh.aspx

Investopedia: Deere May Be Getting Too Little Credit

The ways things are in the market today, whenever I see an industrial stock that seems to be undervalued by 15% or more, I start wondering what I missed or did wrong in my modeling. While I do believe the North American ag equipment market may well go negative next year, I think the Street may be too down on Deere (NYSE:DE) shares. A combination of weak ag next year and no real construction recovery in sight is grim, yes, but it seems as though investors have been a little gentler with Caterpillar (NYSE:CAT) and Cummins (NYSE:CMI) through their downturns. I'm hesitant to buy into what looks like a bearish and skeptical tape, but Deere is starting to creep up the ranks of my list of value-priced quality stocks.

Continue here:
http://www.investopedia.com/stock-analysis/081513/deere-may-be-getting-too-little-credit-de-cnh-cat-cmi.aspx

Seeking Alpha: Commercial Vehicle Still Idling

Unlike truck builder PACCAR (PCAR) and commercial vehicle engine builder Cummins (CMI), Commercial Vehicle Group (CVGI) has yet to benefit the market's willingness to overlook tough current conditions in the trucking industry and transition to the recovery/rebound. But with about one-quarter of the company's sales coming from the construction sector, and construction-exposed companies like Caterpillar (CAT) and Deere (DE) still lagging, perhaps that's not entirely unreasonable.

Commercial Vehicle Group's new CEO is saying all of the right things. The company is going to focus on greater market diversification and greater customer penetration (selling more components to the same customers), continue to look for accretion deals, and aggressively extend operations in areas like China and India. At the same time, management continues to operate a relatively flexible operating structure, and is considering further changes to its manufacturing footprint to reduce costs. That all sounds good, and the shares do seem undervalued, but it's likely to leave the market unimpressed until and unless the company starts beating analyst targets again.

Continue reading here:
Commercial Vehicle Still Idling

Investopedia: Caterpillar's Numbers Look Ugly, But That Was Expected

Even though the mining and construction markets stubbornly refuse to get better as quickly as analysts want them to, there's still a “want to believe” trade alive and well in Caterpillar (NYSE:CAT) shares. In other words, investors know that this company is built to withstand the ups and downs of the very cyclical construction, mining, and energy markets, and there's a definite interest in trying to buy low ahead of the recovery. Although the recovery looks a little further away now after the second quarter and Caterpillar shares aren't exactly cheap, they are a quality vehicle for playing those eventual recoveries in construction, energy, and mining.

Continue reading here:
http://www.investopedia.com/stock-analysis/072413/caterpillars-numbers-look-ugly-was-expected-cat-joy-itw-de.aspx

Investopedia: Komatsu Looks Like A Winner, But Valuation Is Tricky

Most American readers will be well aware of the significant share and scale that Caterpillar (NYSE:CAT) enjoys in the construction and mining industries. What may be less appreciated is that Japan's Komatsu (Nasdaq:KMTUY) enjoys similar scale on a global basis, and has done quite well for itself in markets like China and Indonesia. What's more, Komatsu has made considerable investments in a variety of automation technologies that could set its equipment apart in the coming years. Valuation here isn't a simple exercise, but a multi-metric analysis suggests that Komatsu may well be cheap enough to merit serious investment consideration.

Please follow this link to continue:
http://www.investopedia.com/stock-analysis/071113/komatsu-looks-winner-valuation-tricky-kmtuy-cat-joy-de-volvy.aspx

Investopedia: Even With Steady Guidance, Titan Machinery Has A Lot To Prove

At the risk of drifting into broken record territory, it's very difficult to generate real long-term economic profits from distribution and dealership businesses. By and large, these are business with razor-thin margins, low returns on assets and capital, and significant cyclicality. Maybe Titan Machinery (Nasdaq:TITN) will be the exception, and maybe the company's aggressive dealership roll-up strategy will lead to strong synergies, margin leverage, and cash flow generation. This is a risky play, though, and investors who really want to play trends like agriculture or a construction recovery would likely be better off with the original equipment manufacturers.

Please continue here:
http://www.investopedia.com/stock-analysis/060613/even-steady-guidance-titan-machinery-has-lot-prove-titn-cnh-de-cat.aspx

Investopedia: If You Don't Mind Volatility, Deere Could Still Do Alright

Deere (NYSE:DE) is a curious stock. It seems all too common for investors to bid these shares up into earnings (up about 12% this time), only to be disappointed when management's guidance sounds more conservative than they wanted. And yet, more often than not, the company does fine (or better) the next time around. While this pattern can be frustrating for investors who get stomach aches over the week to week moves in their portfolio, it's an opportunity for investors to make entries (or exits) at better prices.

Please follow this link:
http://www.investopedia.com/stock-analysis/051513/if-you-dont-mind-volatility-deere-could-still-do-alright-de-cat-agco-cnh.aspx

Investopedia: Titan Machinery's Margin Problem

Although I have mentioned it before in previous articles on Titan Machinery (Nasdaq:TITN), it bears repeating – Titan Machinery is pursuing a risky, debt-fueled roll-up model that puts a premium on driving solid long-term operating leverage. This makes the company's fourth quarter miss all the more concerning. While I'm the last person to advocate freaking out (or abandoning a position) over one bad quarter, the long-term impact to fair value of even a half-point adjustment to margin estimates can be significant.

Please follow this link for more:
http://www.investopedia.com/stock-analysis/041213/titan-machinerys-margin-problem-titn-cnh-de-uri.aspx

Investopedia: The Market May Be Overestimating Adecoagro's Risks

Brazilian agriculture and ethanol company Adecoagro (NYSE:AGRO) has not had a good run as a public company. Not only is the stock down more than 30% from its January 2011 debut, the stock has noticeably lagged its Brazilian small-cap peers. Some of this can be chalked up to the unpredictable results of the company's farming operations, but worries about currency and the Argentine government have certainly done the company no favors. While this remains a risky investment prospect, bold investors may want to consider this name given its large apparent discount to fair value.

Please continue here:
http://www.investopedia.com/stock-analysis/040213/market-may-be-overestimating-adecoagros-risks-agro-cresy-dd-de.aspx

Investopedia: Lindsay Corp Still Reaping The Benefits Of The Drought

Last year's serious drought was certainly bad news for uninsured farmers, unhedged buyers of grain, and those who were on the other side of the hedging transactions. On the flip side, the resulting high grain prices have been good news for equipment makers like Deere (NYSE:DE) and Lindsay (NYSE:LNN). The biggest questions for the world's second-largest maker of irrigation equipment now are how much longer the good times will last and whether investors have already let their expectations get ahead of reality.

Strong Results In Fiscal Q2
Results at Lindsay and chief rival Valmont (NYSE:VMI) have historically tracked the price of corn, and that relationship has led to strong results in recent quarters for the company.

Please continue reading here:
http://www.investopedia.com/stock-analysis/032813/lindsay-corp-still-reaping-benefits-drought-lnn-de-vmi-mon.aspx

Seeking Alpha: Quirky Raven Has The Quality, But Not So Much Value

The word quirky probably doesn't do justice to Raven Industries (RAVN), as this small conglomerate is a leader in such disparate markets as reinforced plastic sheeting, GPS-based controls for agricultural equipment, and high-altitude balloons. While Raven has consistently generated strong returns on capital, the free cash flow hasn't been as consistent or impressive. With meaningful exposure to markets like energy and government and what looks to be a premium valuation, I think investors may do better to wait before making a major commitment to Raven with their own capital.

Please read more here:
Quirky Raven Has The Quality, But Not So Much Value

Seeking Alpha: Titan International Deflates After Disappointing Results

The CEO of Titan International (TWI) is hardly a wallflower, and that makes for the occasional interesting headline or entertaining press release. But whatever the entertainment value, Wall Street is a brutally results-oriented place and Titan's fourth quarter earnings didn't pass muster.

While investors have reason to be concerned about the extent to which a weak global construction market and a "weak everything" market in Europe will hurt results over the next year or two, and what the company's long-term free cash flow generation will look like, this pullback could be an opportunity to add shares of an increasingly global off-highway wheel and tire business.

Please click here to continue:
Titan International Deflates After Disappointing Results