US farm incomes are predicted to decline this year for the first time since 2019 due to higher production expenses, lower government payments, and easing commodity and livestock prices. Hence, agriculture stocks Alico, Inc. (ALCO) and AgriFORCE Growing Systems Ltd. (AGRI) might be best avoided considering their bleak fundamentals.

The US Department of Agriculture has projected that net farm income this year will be $136.90 billion, which is nearly 16% down from the previous year. When adjusted for inflation, net farm income is forecast to fall $30.50 billion, or 18.2%.

Moreover, the US agricultural export forecast for the fiscal year 2023 has been lowered to $190 billion, the second-highest farm export level since 1990. Also, the forecast for agricultural imports is expected to increase to its highest level on record.

As a result, the US agricultural trade deficit is expected to widen this year and is forecasted to reach $9 billion, the largest seen in decades.

High inflation, high borrowing costs, and labor shortages continue to impact the agricultural industry.

Take a detailed look at the stocks mentioned above:

Alico, Inc. (ALCO)

ALCO operates as an agribusiness and land management company in the United States. The company operates in two segments, Alico Citrus and Land Management and Other Operations.

ALCO’s forward EV/Sales of 5.70x is 250.7% higher than the industry average of 1.62x. Its forward Price/Sales multiple of 3.33 is 193.7% higher than the industry average of 1.14. Its forward EV/EBITDA multiple of 30.90 is 158.7% higher than the industry average of 11.94.

ALCO’s total operating revenue declined 31% year-over-year to $10.59 million during the first quarter that ended December 31, 2022. Its adjusted EBITDA came in at negative $3.44 million, compared to positive $2.37 million in the prior-year quarter.

Also, adjusted net loss attributable to common shareholders increased 252.5% year-over-year to $6.35 million, whereas adjusted net loss per common share increased 250% year-over-year to $0.84.

Analysts expect ALCO’s revenue to decline 43.6% year-over-year to $28 million for the current fiscal quarter ending March 2023. Its EPS is expected to decline 95.3% year-over-year to $0.13 for the same quarter. The company has failed to surpass EPS estimates in each of the trailing four quarters, which is disappointing.

The stock has declined 31.8% over the past nine months to close its last trading session at $24.04.

ALCO’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

ALCO is also graded an F in Growth and Value and a D in Stability and Momentum. It is ranked #24 out of 25 stocks in the D-rated Agriculture industry.     

In addition to the POWR Rating grades we’ve stated above, ALCO’s rating for Sentiment and Quality can be accessed here.    

AgriFORCE Growing Systems Ltd. (AGRI)

AGRI is an agriculture-focused technology company that focuses on the development and commercialization of plant-based ingredients and products that deliver healthier and nutritious solutions. The company operates in two divisions, AgriFORCE Solutions and AgriFORCE Brands.

AGRI’s forward EV/Sales multiple of 1.90 is 16.80% higher than the industry average of 1.62. Its forward Price/Sales multiple of 1.51 is 33.3% higher than the industry average of 1.14.

AGRI’s operating loss increased 97.1% year-over-year to $13.66 million during the fiscal year that ended December 31, 2022. Its net loss increased 93.8% year-over-year to $12.97 million, while the net loss attributed to common share increased 7.6% year-over-year to $0.71.

Street expects AGRI’s EPS to come in at negative $0.68 in the fiscal year ending December 2023. Its revenue is expected to be $8.40 million for the same quarter.

The stock has declined 85.7% over the past year, closing the last trading session at $0.70.

AGRI’s grim prospects are reflected in its POWR Ratings. The stock has an overall F rating, which translates to a Strong Sell in our POWR Ratings system.

AGRI has an F grade for Value and Quality and a D for Stability. It is ranked #26 in the same industry.     

To see the additional POWR Rating for Growth, Sentiment, and Momentum for AGRI, click here.

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ALCO shares were unchanged in premarket trading Monday. Year-to-date, ALCO has gained 0.71%, versus a 3.88% rise in the benchmark S&P 500 index during the same period.

About the Author: Nidhi Agarwal

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...

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