AGCO Corporation (AGCO) and Caterpillar Inc. (CAT) are two of the world’s largest manufacturers and sellers of agricultural and construction equipment. While AGCO provides tractors, loader wagons, grain storage bins, broiler production equipment, and other related equipment, CAT manufactures mining and construction equipment, track-type tractors, industrial gas turbines, and diesel-electric locomotives.
The coronavirus pandemic forced many farming machinery manufacturers to scale down or temporarily suspend their production process. But a gradual economic recovery, resuscitating demand for machinery from the agricultural and construction sectors, and favorable commodity prices augurs well for the farming and construction machinery industries. Furthermore, benefits from technology developments and the U.S. government’s commitment to invest heavily in infrastructure should position AGCO and CAT to benefit from sustained demand over the long term.
Over the past year, AGCO has returned 217.9%, while CAT gained 118.3%. Also, in terms of year-to-date performance, AGCO is the clear winner with 32.3% gains versus CAT’s 21.5%. But which of these stocks is a better pick now? Let’s find out.
This month, AGCO launched its farmer-first strategy to deliver “farmer-focused solutions to sustainably feed our world” and to provide smart-farming solutions to support farmers. The company believes that the strategy will maximize value creation for its shareholders and allow it to offer high-quality solutions to its customers.
Last December, AGCO appointed Bob De Lange to its Board of Directors. The company also recently elected Matthew Tsien as a member of its Board of Directors. Their extensive knowledge and expertise and leadership skills should help them contribute to the company’s long-term success.
In February, CAT acquired the Oil & Gas Division of the Weir Group PLC, a global engineering business based in Scotland. The acquisition should create a growth opportunity for CAT and allow it to provide additional value to its customers because it significantly expands its offerings and services.
Recent Financial Results
During the fourth quarter, which ended December 31, 2020, AGCO’s net sales increased 8.1% year-over-year to $2.72 billion. The company’s gross profit rose 16% from the prior-year quarter to $595.6 million, while its net income was $135.4 million, compared to a net loss of $88.3 million for the fourth quarter of 2019. It reported an income per share of $1.81, compared to a loss per share of $1.17 in the prior-year quarter.
CAT’s sales and revenue declined 15% year-over-year to $11.2 billion in the fourth quarter ended December 31, 2020. The company’s operating profit margin was 12.3% compared with 14.1% for the fourth quarter of 2019. Its operating profit declined 25% year-over-year to $1.38 billion, while its profit per share declined 27.9% from the year-ago value to $1.42 over this period.
Past and Expected Financial Performance
AGCO’s net income and EPS have increased at CAGRs of 31.8% and 34.5%, respectively, over the past three years. In comparison, CAT’s net income has increased at a CAGR of 58.4% over the past three years, while its EPS grew 63% over this period.
Also, AGCO’s tangible book value and total assets have increased at a CAGR of 13.2% and 2.2%, respectively, over the past three years, while the CAGRs of CAT’s tangible book value and total assets have increased 12.3% and 0.6%, respectively, over this period.
AGCO’s revenue is expected to rise 14.3% in the quarter ending March 30, 2021, 12.1% in the current year, and 4.5 % next year. A consensus EPS estimate represents a 29.8% improvement in fiscal 2021, and 12.6% rise next year.
In comparison, analysts expect CAT’s revenue to increase 3.3% in the current quarter, 10.9% in fiscal 2021 and 9.3% in 2022. Also, the company’s EPS is estimated to increase 24.4% in the current year and 29.9% next year.
CAT’s trailing-12-month’s revenue is more than four times AGCO’s. CAT is also more profitable, with a gross profit margin of 24.3% versus AGCO’s 22.5%.
However, AGCO’s levered cash flow margin of 8.1% compares favorably with CAT’s 5.2%.
In terms of forward PEG, CAT is currently trading at 1.54x, 21.3% higher than AGCO, which is currently trading at 1.27x. Also, its trailing-12-month’s ev/sales of 3.55x is 198.3% higher than AGCO’s 1.19x.
CAT is also more expensive in terms of trailing-12-month price/cash flow (19.07x vs 11.45) and trailing-12-month price-to-book (7.87x vs 3.43x).
AGCO has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. However, CAT has an overall C, which translates to Neutral. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
In terms of Value Grade, AGCO has an A, which is consistent with its lower-than-industry p/e ratio. But CAT’s Value Grade of C is reflective of its higher-than-industry p/e ratio.
Both AGCO and CAT have a Sentiment Grade of B, which is consistent with analysts’ expectations that their earnings and revenue will increase.
Also, both AGCO and CAT have a Momentum Grade of C, consistent with their price returns year-to-date.
In addition to the grades we’ve highlighted, our POWR Ratings system has also rated both AGCO and CAT for Growth, Stability, and Quality. Get all AGCO ratings here. Also, Click here to see the additional POWR Ratings for CAT.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
While both AGCO and CAT are good long-term investments considering their continued investments in providing smart solutions and premium technology, AGCO appears to be a better buy based on the factors discussed here. We think AGCO’s much lower relative valuation and superior financials should help it perform better in the long run.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about the top-rated stocks in the Agriculture industry. Also, click here to access the top-rated stocks in the Industrial – Machinery industry.
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CAT shares were trading at $227.59 per share on Friday afternoon, up $3.34 (+1.49%). Year-to-date, CAT has gained 25.70%, versus a 5.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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