CHICAGO, April 29, 2011 /PRNewswire/ -- Zacks Equity Research highlights: AGCO Corporation (Nasdaq: AGCO) as the Bull of the Day and Badger Meter Inc. (NYSE: BMI) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Ford (NYSE: F), Kellogg's (NYSE: K) and Wal-Mart (NYSE: WMT).
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Full analysis of all these stocks is available at http://at.zacks.com/?id=2678.
Here is a synopsis of all five stocks:
AGCO Corporation's (Nasdaq: AGCO) adjusted first quarter EPS of $0.81 was almost seven times that of the year-ago quarter, driven by sales growth across all segments and improved gross margins. For fiscal 2011, AGCO expects EPS between $3.50 and $3.75. Global industry sales are anticipated to grow in 2011.
With a full product line of farm equipment and a wide network of dealers and distributors, we believe AGCO is well positioned over the long-term to capitalize on the need for increased food production, which is being driven by worldwide population growth. Moreover, the company is also looking to expand operations in high-growth emerging markets, which bode well for future operating performance.
Over the last five years, the company's shares have traded in the range of 4.2 to 36.4 trailing 12-month earnings. We maintain our Outperform recommendation with a target price of $68.00, based on 20.0x P/E to our fiscal 2011 earnings estimate.
Badger Meter Inc. (NYSE: BMI) delivered disappointing first quarter results, as EPS declined 39% year over year to $0.22 and fell short of the Zacks Consensus Estimate at $0.43. Net sales dropped 7.2% year over year to $57.4 million, compared to the Zacks Consensus Estimate of $69 million.
The increased sales of manual meters were not enough to offset the dismal sale of automatic meters. This resulted in decreased gross margins as manual meters have lower margins compared with the automatic meters.
Our long-term Underperform recommendation on the stock indicates that it will perform below the overall market. Our $33 target price, 17.8x our 2011 EPS estimate, reflects this view.
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How We Got to 1.8% Growth
Within the consumption of goods, consumption of non-durable goods is about twice as large as the consumption of durable goods. However, since people can defer purchase of durable goods like an auto from Ford (NYSE: F) more easily than they can defer purchase of a box of Corn Flakes from Kellogg's (NYSE: K), durable goods demand is very volatile. As a result, durable goods tend to "punch above their weight" in determining if the economy is booming or slumping.
Durable goods consumption added 0.78 points to growth, down sharply from an addition of 1.45 points in the fourth quarter but up from 0.54 points in the third quarter. While that contribution is not bad, the sharp slowdown is a bit disheartening. The sector is only 10.88% of PCE and 7.75% of overall GDP, yet it contributed 43.33% of the overall GDP growth in the quarter. Early in recoveries it tends to have a bigger positive impact, but it also has a big negative impact when the economy falls into recession.
Non-durable goods are 23.15% of PCE and 16.48% of overall GDP. The sector's contribution to growth fell to 0.34 points in the first quarter from 0.65 points in the fourth quarter and 0.39 points in the third quarter. For a "Steady Eddie" part of the economy, this is nice solid, and importantly, sustainable level of contribution to growth.
Overall, the Consumer is doing his and her part in getting the economy rolling again. The strong contribution from the consumer service sector is encouraging. All three parts made solid contributions to growth, though goods much less so than in the fourth quarter.
While over the long term we can worry that far too much of the overall U.S. economy is dedicated to consumption and not enough to investment and exports, for right now we want to see the Consumer alive and kicking. Without a doubt he was in the first quarter, but not kicking as hard as at the end of last year.
Our trade deficit is unsustainably large. It -- not the budget deficit -- is the reason why we are so in debt to the rest of the world. The budget deficit feeds into our overseas indebtedness only indirectly. Over half of our overall trade deficit comes from our addiction to imported oil.
Unfortunately, a weaker dollar is not likely to help significantly on this front, as when the dollar weakens, the price of oil tends to rise. However, a weaker dollar is very useful in reducing the non-oil part of the deficit. It makes imported goods more expensive, and therefore less competitive with domestically made substitutes. It also makes our exports more competitive.
However, if we can start to replace imported oil with domestically produced energy we could substantially boost the overall rate of economic growth. While ultimately we would want to do that with renewable sources, such as wind and solar, they mostly produce electricity, and oil is mostly used as a transportation fuel. We do, however, have very abundant supplies of natural gas, and the technology for using natural gas as a transportation fuel is already very well established.
We need to take steps NOW to transition to the use of more natural gas as a transportation fuel to replace oil. Ethanol really is not that good of an answer since the production of corn to be made into ethanol for fuel requires using a lot of oil. The use of a huge portion of our corn crop to make fuel is a big part of the reason that food prices are rising so quickly. That is a bit of a problem here, and it is a huge problem for the rest of the world.
However if we can move to ethanol made from things like sawgrass or the corn stalks that are left over from the corn harvests, that would be a major step forward. Bio-fuels based on algae are also another promising area. However, commercialization of non-food based ethanol is several years away.
A weaker dollar would help significantly on the other half of the trade deficit, the part that is made up of all the stuff lining the shelves at Wal-Mart (NYSE: WMT). King Dollar is a tyrant and needs to be deposed. It will help on reducing imports as foreign goods become relatively more expensive and producers fill demand from domestic production. That does not happen overnight, however.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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