The company has established a phenomenal track record of topping its earnings estimate for the last 27 quarters. Given that management has raised the guidance from $10.2 billion-$10.4 billion to $10.5 billion-$10.7 billion, it is most likely that the company will be able to achieve growth by beating the weakness in both European and North American agriculture market.
Another company with Latin American exposure
CNH Global NV (NYSE:CNH) reported a solid earnings beat on May 3. However, the company gave out a cautious outlook regarding its end markets in Europe and Asia. The company sells both agriculture and construction equipment machinery to Asian and European markets. The weakness in construction markets over there compelled the company to lower its guidance for both the regions.
However, the company remains optimistic about its growth in Latin America where sales of tractor and combines have been at a record high. Experts believe that improving cash flow for farmers in this region will be diverted towards machinery purchases rather than livestock sector.
Overall, I have a bullish stance on the stock. No doubt that the company is expecting weakness in its construction markets, but it has already reduced its guidance for that region. Also, the company is planning to bring some restructuring to that segment that might help it operate above break even, and hence prove that guidance was conservative. Moreover, the company has a solid Latin American exposure that will fuel the growth for the company any way.
A weakening North American market and an improving Latin American market for agricultural products leaves us with the theme of buying companies with high exposure to Latin American market (that are AGCO Corporation (NYSE:AGCO) and CNH Global NV (NYSE:CNH)).
The article What Is Going on With Farm Machinery Stocks? originally appeared on Fool.com and is written by Zain Abbas.
Zain Abbas has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Zain is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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