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Lindsay (LNN) Rides on Irrigation Demand Amid Cost Woes

·5-min read

Lindsay Corporation LNN is well-poised to gain on improving farm dynamics in the United States on the back of higher commodity prices. However, inflated costs and supply chain issues that are currently rampant in the industry are expected to hurt Lindsay’s near-term results. The company’s infrastructure business is positioned well for the long run, courtesy of strong demand for transportation safety products and higher infrastructure spending. A strong balance sheet, focus on introducing technologically advanced products, and investment in organic growth and acquisitions will drive growth for the company.

Irrigation Demand to Remain Strong

Corn and soybeans are the most important grains for cash crop farming in the United States. After a solid gain of 23% in 2021, corn price is currently at $6 a bushel amid solid demand and production concerns due to dry weather in South America, supply constraints and elevated global fertilizer prices. Soybean is at $13.8 per bushel and is being supported by supply worries stemming from drought conditions in Argentina and southern Brazil. In northern Brazil, rains have slowed down early harvest. Owing to high fertilizer prices, farmers are opting for soybean as it is a less fertilizer-intensive crop. High commodity prices will drive farm income and persuade farmers to continue spending on agricultural equipment. This, in turn, will drive Lindsay’s top line.

Infrastructure Business Poised to Grow

Lower Road Zipper System sales have been weighing on the infrastructure segment revenues since last year as the timing of certain projects was impacted by coronavirus-related delays. With the emergence of different variants of coronavirus, the same might be repeated this year as well. However, the company anticipates an increase in project activity in the second half of fiscal 2022.

Nevertheless, in the long run, Lindsay’s Road Zipper System is expected to be a key catalyst for the segment. It is a highly differentiated product that positively addresses key infrastructure needs such as reducing congestion, lowering carbon emission, and increasing driver safety, which has led to its global popularity.

Demand for the company’s transportation safety products is highly dependent on government spending for road construction. The signing of the Infrastructure Investment and Jobs Act (IIJA) into law on Nov 15, 2021 will act as a tailwind for the infrastructure business. This legislation introduced $110 billion in incremental federal funding to repair roads, bridges and support other transformational projects, which will translate into higher demand for Lindsay’s transportation safety products. The IIJA includes a five-year $370 billion reauthorization of Fixing America’s Surface Transportation (Fast Act).

Investment in Technology to Provide Competitive Edge

Focus on bringing technologically advanced products to the market will fuel Lindsay’s top line. In April 2020, the company completed the buyout of Net Irrigate, LLC, which will expand the number of irrigated acres managed under the company’s FieldNET platform. This acquisition strengthened Lindsay’s market position in remote monitoring capabilities. The company is witnessing strong growth in technology penetration, which will drive performance in the days ahead. The company anticipated new product revenues as a percentage of total revenues to go up from 2% in fiscal 2017 to 15% in 2023.

A Solid Balance Sheet

Backed by a strong balance sheet, Lindsay continues to invest in organic growth, make synergistic acquisitions while enhancing returns to stockholders. As of Nov 30, 2021, the company had available liquidity of $164.9 million, with $114.9 million in cash, cash equivalents and marketable securities and $50 million available under the revolving credit facility. The company’s total debt to capital ratio was 0.25 as of Nov 30, 2021 — much lower than the industry’s total debt to capital ratio of 0.74. The company's times interest earned ratio is 12.2, much better than the industry's 7.8.

Costs, Supply Chain Issues Prevail

Lindsay has been witnessing a rapid increase in input costs, particularly of steel and zinc used in the production of its products. Transportation costs have gone up. Constraints on the availability of raw materials, labor and trucking resources have led to higher lead times for deliveries. The company continues to introduce appropriate sales price adjustments to combat cost inflation. However, competitive market pressures may affect its ability to pass price adjustments to its customers. These factors will impact margins in the short term.

Price Performance

Zacks Investment Research
Zacks Investment Research

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Lindsay’s shares have declined 0.4% in the past year compared with the industry’s rally of 20.3%.

Zacks Rank & Stocks to Consider

At present, Lindsay carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector are Berry Global Group, Inc. BERY, Titan International TWI and Sealed Air Corporation SEE. While BERY and TWI flaunt a Zacks Rank #1 (Strong Buy), SEE carried a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Berry Global Group has an estimated earnings growth rate of around 2.8% for fiscal 2022. In the past 60 days, the Zacks Consensus Estimate for fiscal 2022 earnings has been revised upward by 18%.

In a year, the company’s shares have increased 35.7%. Berry Global has a trailing four-quarter earnings surprise of 16.5%, on average.

Titan Industrial has a projected earnings growth rate of 48% for fiscal 2022. The Zacks Consensus Estimate for fiscal 2022 earnings has been revised upward by 13% in the past 60 days.

TWI’s shares have gained 55.7% in a year. Titan Industrial has a trailing four-quarter earnings surprise of 32%, on average.

Sealed Air has an expected earnings growth rate of 16% for fiscal 2022. The Zacks Consensus Estimate for fiscal 2022 earnings has been revised upward by 1% in the past 60 days.

Sealed Air’s shares have appreciated 50% in the past year. SEE has a trailing four-quarter earnings surprise of 6.54%, on average.

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