Tuesday, June 24, 2014

AGCO Faces a Difficult Year, but is the Stock a Buy Anyway?

Investing in agricultural machinery company AGCO Corporation  doesn't appear to be rocket science to many investors. In common, with rivals like Deere & Company , the stock's direction is usually dictated by movements in key farming commodity prices. At the same time, investors should be open-minded to buying when others think prospects are gloomy. So, with the stock in negative territory over the last year, is now the time to buy AGCO?

Near-term risks remain
Simply put, no one likes buying a stock with deteriorating earnings, and analyst forecasts are for AGCO's earnings to decline over the next two years.

Moreover, there are three reasons why AGCO faces near-term risk.

First, despite weakening market conditions, AGCO kept its outlook unchanged in the first quarter. This raises the fear that it will miss estimates going forward. Its full-year revenue guidance of $10.8 billion-$11 billion, and full-year EPS guidance of $6.00 was left unchanged, even while there has been some weakness in South America (19% of sales in 2013). Its South American sales declined 9.3% on a constant currency basis in the first quarter, and its rival Deere & Company also saw weakness that caused it to lower its full-year guidance for South America and the CIS countries.