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Machinery Stocks

AGCO Corporation Valuation – February 2016 $AGCO

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – February 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how AGCO Corporation (AGCO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): AGCO Corporation is a manufacturer and distributor of agricultural equipment and related replacement parts around the world. The Company sells a range of agricultural equipment, including tractors, combines, self-propelled sprayers, hay tools, forage equipment, seeding and tillage, implements, and grain storage and protein production systems. Its products are marketed under various brands, including Challenger, Fendt, GSI, Massey Ferguson and Valtra. It also provides retail financing through its finance joint ventures with Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. The Company’s geographical segments include North America, South America, Europe/Africa/Middle East and Asia/Pacific. The Company’s AGCO Power engines division produces diesel engines, gears and generating sets. It also offers precision farming technologies, which are installed in its products and include satellite-based steering, field data collection, yield mapping and telemetry-based fleet management systems.


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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of AGCO

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $3,930,355,617 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.58 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 119.17% Pass
6. Moderate PEmg Ratio PEmg < 20 10.94 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.39 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.58 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.95 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

AGCO value chart February 2016

EPSmg $4.24
MG Growth Estimate 2.78%
MG Value $59.61
Opinion Fairly Valued
MG Value based on 3% Growth $61.50
MG Value based on 0% Growth $36.05
Market Implied Growth Rate 1.22%
Current Price $46.38
% of Intrinsic Value 77.80%

AGCO Corp qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the short dividend record.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.58 in 2011 to an estimated $4.24 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 1.22% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

Stage 3: Information for Further Research

AGCO charts February 2016

Net Current Asset Value (NCAV) -$7.33
Graham Number $42.19
PEmg 10.94
Current Ratio 1.58
PB Ratio 1.39
Dividend Yield 1.01%
Number of Consecutive Years of Dividend Growth 3



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Most Recent Balance Sheet Figures

Balance Sheet Information Sep2015
Total Current Assets $3,500,500,000
Total Current Liabilities $2,212,200,000
Long-Term Debt $1,230,200,000
Total Assets $7,071,600,000
Intangible Assets $1,644,400,000
Total Liabilities $4,144,200,000
Shares Outstanding (Diluted Average) 87,800,000

Earnings Per Share History

Next Fiscal Year Estimate $2.32
Dec2014 $4.36
Dec2013 $6.01
Dec2012 $5.30
Dec2011 $5.95
Dec2010 $2.29
Dec2009 $1.44
Dec2008 $3.95
Dec2007 $2.55
Dec2006 -$0.71
Dec2005 $0.35
Dec2004 $1.71
Dec2003 $0.98
Dec2002 -$1.14
Dec2001 $0.31
Dec2000 $0.06
Dec1999 -$0.20
Dec1998 $0.99
Dec1997 $2.71
Dec1996 $2.20

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.24
Dec2014 $5.06
Dec2013 $5.01
Dec2012 $4.27
Dec2011 $3.58
Dec2010 $2.23
Dec2009 $1.97
Dec2008 $2.02
Dec2007 $1.02
Dec2006 $0.25
Dec2005 $0.64
Dec2004 $0.65
Dec2003 $0.08
Dec2002 -$0.25
Dec2001 $0.39
Dec2000 $0.67
Dec1999 $1.03

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stocks for the Enterprising Investor – January 2016
The Best Companies of the Machinery Industry – August 2015
The 20 Best Stocks For Value Investors This Week – 8/15/15
AGCO Corporation Analysis – Initial Coverage $AGCO

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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