Formed in 1990 with the buyout of a German agricultural equipment manufacturer, AGCO has steadily built itself into a global leader in light & heavy agriculture equipment.
In addition to tractors and combines, AGCO has
made dozens of acquisitions in the past 15 years, gaining exposure to all
stages of agriculture production, including fertilizer distribution, crop
protection & maintenance, harvesting tools, and digitized automation
services for factories and rural farms.
AGCO has not only succeeded in going up against
monster competitors like Deere & Company, it has gained market share in
many key segments, specifically around what is known as “precision farming” –
the use of modern technologies and to holistically view and monitor one’s
crops, from seeding through harvest and everything in between.
Precision farming increases yields and lowers
costs, which is more important for cannabis production than for any other crop
on the planet, due to the high cost/kg of finished product value.
The cannabis industry is just beginning to take
hold, and many federal restrictions currently inhibit large-scale growing in
the U.S., but exciting green shoots are appearing of late.
Most notable is the Hemp Farming Act of 2018, now
signed into law and allowing the mass production of industrial hemp for use in
biofuels, textiles, animal feed, paint, and insulation, and hundreds of other
industrial products. Global industrial hemp revenues are expected to climb to
over $9.5 billion by 2025, for a CAGR of over 13% annually.
AGCO is leading the agriculture industry in
IoT/5G implementations, including a landmark project in Brazil in conjunction
with Nokia and Telecom Italia that will connect 500,000 people with robotics,
sensors, and rural wireless solutions making use of LTE & 5G connectivity
and AGCO’s Fuse line of internet-enabled sensors and mobile applications.
As the cannabis industry matures and sees
regulations erode in the coming years, AGGO is the best-poised to capture the
lion’s share of a $40 billion market opportunity.
the Numbers: AGCO is an established mid-cap industrial
stock, sporting a market capitalization over $9 billion. While industry sales
of tractors and combines have flattened out in the past few years due to lower
global plantings and falling prices for commodities like corn, wheat, and
soybeans, AGGO shares have outpaced peers, rising 17% in 2019.
The company’s capital position is very strong,
allowing for a 1% dividend and consistent stock buybacks over the past 6 years.
AGCO shares trade for a forward P/E under 15x, and operating margins have
expanded by 180 basis points in the past year despite the industry headwinds.
The fastest-growing segments of the company are
the next-gen products incorporating the Fuse family of internet devices and
sensors. And AGCO is plowing money into precision farming efforts, acquiring
Precision Planting, LLC in 2017 and allocating over $500 million annually into
capital expenditures and R&D.
5G will open up many doors for the steady grower, allowing for multiple expansion and a general re-rating of shares as the technology focus comes to the forefront.
That's why we believe AGCO Corporation (Nasdaq: AGCO) is will benefit from the 5G and cannabis boom.