Machinery Stocks

AGCO Corporation Valuation – August 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 – July 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 segments include North America, South America, Europe/Africa/Middle East, and Asia/Pacific. The Company’s Chinese harvesting business operates within the Asia/Pacific segment. The former sprayer reporting unit operates within the North American segment. The Company’s products include tractors, combines, application equipment, hay tools and forage equipment, implements and other equipment, grain storage and protein production systems, and replacement parts. Its AGCO Power engines division produces diesel engines, gears and generating sets. Its products are marketed under brands, including Challenger, Fendt, GSI, Massey Ferguson and Valtra.

AGCO Chart

AGCO data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of AGCO – August 2016

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 $3,735,526,052 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.54 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
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 15.37% Fail
6. Moderate PEmg Ratio PEmg < 20 13.63 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.31 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 1.54 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.19 Fail
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 Fail

Stage 2: Determination of Intrinsic Value

AGCO value chart August 2016

EPSmg $3.42
MG Growth Estimate -2.97%
MG Value $8.78
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $49.63
MG Value based on 0% Growth $29.09
Market Implied Growth Rate 2.57%
Current Price $46.66
% of Intrinsic Value 531.36%

AGCO Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $4.27 in 2012 to an estimated $3.42 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 2.57% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into AGCO Corporation revealed the company was trading above its Graham Number of $37.26. The company pays a dividend of $0.5 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 13.63, which was below the industry average of 20.76, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-9.57.

AGCO Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

AGCO charts August 2016

Net Current Asset Value (NCAV) -$9.57
Graham Number $37.26
PEmg 13.63
Current Ratio 1.54
PB Ratio 1.31
Current Dividend $0.50
Dividend Yield 1.07%
Number of Consecutive Years of Dividend Growth 4

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $3,306,200,000
Total Current Liabilities $2,146,100,000
Long-Term Debt $1,378,700,000
Total Assets $7,015,900,000
Intangible Assets $1,696,900,000
Total Liabilities $4,092,200,000
Shares Outstanding (Diluted Average) 82,100,000

Earnings Per Share History

Next Fiscal Year Estimate $1.74
Dec2015 $3.06
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 $0.33
Dec2000 $0.06
Dec1999 -$0.20
Dec1998 $0.99
Dec1997 $2.71
Dec1996 $2.20

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.42
Dec2015 $4.49
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 -$0.24
Dec2001 $0.40
Dec2000 $0.67

Recommended Reading:

Other ModernGraham posts about the company

15 Best Stocks For Value Investors This Week – 2/13/16
AGCO Corporation Valuation – February 2016 $AGCO
10 Low PE Stocks for the Enterprising Investor – January 2016
10 Low PE Stocks for the Enterprising Investor – November 2015
12 Best Stocks For Value Investors This Week – 11/7/15

Other ModernGraham posts about related companies

PACCAR Inc Valuation – August 2016 $PCAR
W.W. Grainger Inc Valuation – August 2016 $GWW
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Xylem Inc Valuation – August 2016 $XYL
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Roper Technologies Inc Valuation – July 2016 $ROP
Eaton Corp Valuation – July 2016 $ETN
Parker-Hannifin Corp Valuation – July 2016 $PH
Dover Corporation Valuation – July 2016 $DOV
Fastenal Company Valuation – July 2016 $FAST

Disclaimer:

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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