Caterpillar Inc.’s (CAT) multi-purpose agricultural machines include mini excavators, small dozers, and telehandlers. The Peoria, Ill.-based concern reported impressive financials in its second quarter (ended June 30, 2021). But rising costs are expected to harm its profitability in the third quarter (ended September 30, 2021). Its 26.20% and 0.58% respective trailing-12-month gross profit margin and asset turnover ratio are lower than the 29.19% and 0.78% industry averages.
The stock has lost 12.3% in price over the past six months to close Friday’s trading session at $200.65. Morgan Stanley (MS) analyst Courtney Yakavonis maintained an ‘Underweight’ rating on the stock. Also, in terms of forward EV/S ratio, CAT’s 2.73x is 36% higher than the 2.01x industry average. In addition, its 2.18x forward P/S is 37.1% higher than the 1.59x industry average. So, it may not be a wise bet in the booming agricultural equipment market.
The agricultural equipment market is expected to grow exponentially in the coming months due to the integration of advanced technologies and a supply crunch in the food market. According to a Future Market Insights report, the global agricultural equipment market is expected to reach $65 billion in 2021 and grow at a 4.8% CAGR between 2021 - 2031. So, we think investors looking to benefit from the industry’s growth could instead bet on quality agricultural equipment stocks CNH Industrial N.V. (CNHI) and Alamo Group Inc. (ALG) instead.
CNH Industrial N.V. (CNHI)
CNHI designs, produces, markets, sells, and finances agricultural and construction equipment, commercial vehicles, and specialty vehicles internationally. The London-based company operates through five segments: Agriculture; Construction; Commercial and Specialty Vehicle; Powertrain; and Financial.
On August 31, CNHI launched’ MYshuttle!’. Daniela Ropolo, the Head of Sustainable Development Initiatives for CNH Industrial, said, “CNH Industrial has always been one of the international players in the world of transport and MYshuttle! offers a tangible interpretation of the ‘Smart Mobility’ concept and the link with sustainable mobility, technology, and innovation, all factors that are integrated into the mobility of tomorrow.”
For the second quarter, ended June 30, 2021, CNHI’s total revenues increased 59.8% year-over-year to $8.91 billion. The company’s net income increased 97.1% year-over-year to $690 million. Also, its EPS came in at $0.51, up 96.2% year-over-year.
CNHI’s revenue is expected to be $28.55 billion in its fiscal year 2022, representing a 4.8% year-over-year rise. In addition, the company’s EPS is expected to increase 12.7% year-over-year to $1.15 in the next year. Over the past year, the stock has gained 105.2% to close yesterday’s trading session at $17.44.
It’s no surprise that CNHI has an overall B rating, which equates to a Buy in our POWR Rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting. The stock has an A grade for Value, and a B grade for Growth and Sentiment.
CNHI is ranked #19 of 81 stocks in the Industrial - Machinery industry. Click here to see the additional POWR Ratings for CNHI (Stability, Momentum, and Quality).
Click here to check out our Industrial Sector Report for 2021
Alamo Group Inc. (ALG)
ALG designs, manufactures, distributes, and services agricultural and infrastructure maintenance equipment worldwide for governmental and industrial use. It’s a market leader in product innovation and development, creating and marketing compelling brands, product safety, and manufacturing efficiency. ALG is based in Seguin, Tex.
On August 4, Jeff Leonard, ALG’s President and CEO, said, “Sales in the quarter improved strongly, and net income doubled compared to the second quarter of 2020. Sales and net income were also significantly improved versus the pre-pandemic second quarter of 2019 and benefited from the contributions of the Dutch Power and Mortars businesses that we acquired in 2019.”
ALG’s total sales increased 29.4% year-over-year to $347.55 million for the second quarter ended June 30, 2021. Its income from operations came in at $33.59 million, up 48.2% year-over-year. While its net income increased 100.5% year-over-year to $26.04 million, its EPS was $2.19, up 99.1% year-over-year.
Analysts expect ALG’s revenue and EPS to increase 14.6% and 37.2% year-over-year to $1.33 billion and $7.19, respectively, in fiscal 2021. Over the past year, the stock has gained 21.3% in price to close yesterday’s trading session at $149.17.
ALG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary rating system.
ALG has a B grade for Sentiment, Stability, and Quality. Within the Industrial - Machinery industry, it is ranked #12. Click here to see the additional POWR Ratings for Growth, Value, and Momentum for ALG.
Click here to check out our Industrial Sector Report for 2021
CAT shares were trading at $202.54 per share on Monday afternoon, up $1.89 (+0.94%). Year-to-date, CAT has gained 13.60%, versus a 22.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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