Agriculture plays a pivotal role in economic growth, contributing 4% to the global Gross Domestic Product (GDP), and in certain less developed countries, the agricultural sector's contribution to GDP can surpass 25%. With a responsibility to feed an estimated 10 billion individuals by 2050, the agricultural industry’s long-term prospects look promising.
In such a scenario, this article aims to shed light on the fundamentals of three solid agricultural stocks, AGCO Corporation (AGCO), ICL Group Ltd (ICL), and Adecoagro S.A. (AGRO), which appear well-equipped to capitalize on the industry’s prospects.
Geopolitical tensions such as the Russia-Ukraine conflict have expedited the global food crisis. In the aftermath of Russia's invasion of Ukraine, there has been a notable surge in trade-related policies implemented by various countries.
The global food crisis has been exacerbated in part by the increasing prevalence of food trade restrictions enacted by nations aiming to bolster domestic supply and curb prices. As of November 27, 2023, a total of 19 countries have instituted 27 food export bans, with an additional nine countries implementing 17 export-limiting measures.
Given the worsening global food crisis and expanding population reliant on agriculture by 2050, the widespread technological integration within the sector becomes increasingly crucial. For instance, Artificial Intelligence (AI) is instigating transformative shifts in the agricultural sector, restructuring farming practices and associated processes.
The essential utilization of AI technologies like data analytics, computer vision, and machine learning plays a pivotal role in overcoming these challenges and realizing the vast potential of agriculture. The global AI in the agricultural market is anticipated to hit $11.96 billion by 2032, growing at an impressive CAGR of 23.7% from 2023 to 2032.
Meanwhile, considering the sector's significance, governments worldwide are heavily investing to improve efficiency and cut costs. A notable example is the Biden-Harris Administration’s allocation of $266 million to support rural business owners, farmers, and ranchers in lowering energy expenses, generating income, and expanding operations.
Overall, the agricultural industry stands poised for resilience and productivity through strategic investments in technology and robust government backing. With that being said, let’s dive deeper into the fundamentals of the featured Agriculture stocks, beginning with number three:
Stock #3: AGCO Corporation (AGCO)
AGCO manufactures agricultural equipment and related replacement parts worldwide. The company offers tractors, drying and handling equipment systems, seed-processing systems, harvesting grain crops and application equipment.
On December 6, AGCO announced that six of its products and solutions had been honored with prestigious 2024 AE50 awards by the American Society of Agricultural and Biological Engineers (ASABE).
AGCO's 2024 awards encompass its Fendt®, Massey Ferguson®, and Precision Planting® brands, underscoring the company's consistent excellence across its diverse product lines and solidifying its position as the foremost innovator in agriculture, dedicated to providing cutting-edge solutions for farmers.
AGCO’s trailing-12-month Return On Common Equity (ROCE) of 29.32% is 139.7% higher than the 12.23% industry average. Its trailing-12-month net income margin of 7.96% is 30.9% higher than the industry average of 6.08%. Furthermore, the stock’s trailing-12-month asset turnover ratio of 1.37x is 72.6% higher than the 0.79x industry average.
For the fiscal third quarter that ended on September 30, 2023, AGCO’s net sales increased 10.7% year-over-year to $3.46 billion, while its gross profit rose 26.4% from the year-ago value to $934 million.
The company’s adjusted net income amounted to $297.90 million and $3.97 per share, up 24.9% and 24.8% from the prior-year quarter, respectively. Additionally, its adjusted income from operations improved 31.8% year-over-year to $435.80 million.
Street expects AGCO’s EPS and revenue for the fiscal year ending December 2023 to increase 27.4% and 16% year-over-year to $15.82 and $14.68 billion, respectively. Moreover, the company surpassed its EPS estimates in each of the trailing four quarters, which is promising.
The stock has gained marginally over the past month to close the last trading session at $114.95.
AGCO’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Value. In the 25-stock Agriculture industry, it is ranked #5. Click here to see AGCO’s ratings for Growth, Momentum, Stability, Sentiment, and Quality.
Stock #2: ICL Group Ltd (ICL)
Headquartered in Tel Aviv, Israel, ICL operates as a specialty minerals and chemicals company worldwide. It operates in four segments: Industrial Products; Potash; Phosphate Solutions; and Growing Solutions. Its products include potash and phosphate fertilizers, specialty fertilizers, functional ingredients, flame retardants, and magnesia products.
On August 9, ICL celebrated the commencement of construction for its battery materials manufacturing plant in St. Louis. This $400 million facility is set to become the first large-scale lithium iron phosphate plant in the United States, with operations expected to commence by 2025.
Designed to address the surging demand in the energy storage, Electric Vehicle (EV), and clean-energy industries for the U.S.-produced and sourced essential battery materials, the plant represents a strategic investment by ICL. Moreover, the U.S. Department of Energy has further bolstered this investment with a substantial $197 million grant.
The stock’s trailing-12-month levered FCF margin of 9.38% is 128.3% higher than the 4.11% industry average. Its trailing-12-month net income margin of 11.48% is 92.6% higher than the industry average of 5.96%. Furthermore, ICL’s trailing-12-month EBIT margin of 19.40% is 70.5% higher than the 11.38% industry average.
For the fiscal third quarter, which ended on September 30, 2023, ICL’s sales amounted to $1.86 billion, while its gross profit stood at $586 million. During the same period, the company’s attributable net income amounted to $137 million. In addition, its EPS and total adjusted EBITDA came in at $0.11 and $346 million, respectively.
Analysts predict ICL’s revenue and EPS for the fiscal fourth quarter (ending December 2023) to come in at $1.67 billion and $0.09, respectively. Moreover, the company topped its revenue and EPS estimates in three of the trailing four quarters, which is impressive.
The stock gained marginally intraday to close the last trading session at $5.02.
ICL’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has an A grade for Value and a B for Sentiment and Quality. Within the same industry, it is ranked #3. Click here to see the other ratings of ICL for Growth, Momentum, and Stability.
Stock #1: Adecoagro S.A. (AGRO)
Luxembourg-based agro-industrial company AGRO operates mainly through three segments: Farming; Sugar; Ethanol and Energy; and Land Transformation. AGRO engages in farming crops, rice and other agricultural products, dairy operations, and land transformation activities.
On November 24, AGRO paid its shareholders a quarterly dividend of $0.16 per share. The company’s annual dividend translates to a 3.16% yield on the prevailing prices, while its four-year average dividend yield is 1.18%.
AGRO’s trailing-12-month levered FCF margin of 12.64% is 160.1% higher than the 4.86% industry average. Its trailing-12-month EBIT margin of 16.14% is 92.2% higher than the industry average of 8.40%. Furthermore, the stock’s trailing-12-month net income margin of 10.45% is 113.4% higher than the 4.90% industry average.
In the fiscal third quarter, which ended on September 30, 2023, AGRO’s gross sales increased 1.6% year-over-year to $387.95 million. The company’s adjusted net income came in at $88.56 million and $0.83 per share, representing increases of 87.6% and 93% from the prior-year quarter, respectively. Furthermore, its total adjusted EBITDA rose 27% from the year-ago value to $155.29 million.
The consensus EPS estimate of $1.47 for the fiscal year ending December 2023 represents a 30.1% increase year-over-year. While the consensus revenue estimate of $1.38 billion for the same quarter reflects a 2.1% year-over-year improvement. Additionally, the company has an excellent surprise history, surpassing the revenue estimates in each of the trailing four quarters.
AGRO’s shares have surged 31.9% year-to-date and 41.7% over the past year to close the last trading session at $10.94.
It’s no surprise that AGRO has an overall rating of B, which equates to a Buy in our proprietary rating system. It has a B grade for Value and Sentiment. In the same industry, it is ranked #2.
In addition to the POWR Ratings we’ve stated above, we also have AGRO’s ratings for Growth, Momentum, Stability, and Quality. Get all AGRO ratings here.
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AGCO shares were trading at $113.20 per share on Tuesday morning, down $1.75 (-1.52%). Year-to-date, AGCO has declined -14.13%, versus a 22.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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