On Dec 29, 2015, we issued an updated research report on Lindsay Corporation LNN. The irrigation equipment maker is poised to benefit from the five-year Highway Bill, meaningful acquisitions, a solid capital allocation plan and investments in product development. However, reduced commodity prices, lower farm incomes, currency volatility and declining backlog will remain as headwinds for the company.
During the first quarter of fiscal 2016, Lindsay’s infrastructure revenues edged up 1% year over year due to a rise in sales of road safety and Road Zipper products. Lindsay expects the momentum in infrastructure to remain strong, driven by increased interest in the Road Zipper system. Further, the recent passage of the five-year Highway Bill bodes well for sales growth of road safety products and Road Zipper systems over the next two years and beyond, as it provides states with more funding, visibility and certainty regarding planned projects.
Lindsay has successfully expanded its business through strategic acquisitions. The company acquired SPF Water Engineering, LLC in Jul 2015 for $2.5 million. Prior to that, Lindsay took over Elecsys Corporation for $70.5 million in Jan 2015. This acquisition will contribute to the development of Lindsay’s technology platform. Elecsys’ results will be accretive to Lindsay’s earnings within the first 12 months of operation. Management is confident that further acquisitions at the company will continue to drive growth.
Notably, Lindsay’s capital allocation plan includes continuous investment in revenue and earnings growth, together with a defined process for enhancing returns to stockholders. Under the company’s announced capital allocation plan in Jan 2014, the priorities for use of cash include investment in organic growth, including capital expenditures and expansion of international markets; raising dividends and opportunistic share repurchases. These actions will likely aid growth at the company.
Barring these positives, Lindsay’s earnings continue to bear the brunt of weak demand in the U.S. Lower commodity prices and reduced farm income continue to affect farmer sentiment regarding capital goods purchases. The USDA projects 2015 net farm income of $55.9 billion, down 38% from the prior year and down nearly 55% from the record-high witnessed in 2013. Net farm income for 2015 is expected to be the lowest since 2002. Naturally, Lindsay’s results will continue to suffer on this ground.
Further, Lindsay remains concerned about unfavorable currency rates and lower grain prices which may lead to delays in projects in fiscal 2016, and in turn weigh on the top line. The company does not expect to have visibility into the primary selling season until February or March. Moreover, the market environment is expected to remain challenging at least through 2016, which may affect Lindsay’s performance next year.
Lindsay currently carries a Zacks Rank #3 (Hold).
Stocks that Warrant a Look
Some better-ranked stocks in the sector are Astec Industries, Inc. ASTE, Allegion Plc ALLE and EnPro Industries, Inc. NPO. All the three stocks hold a Zacks Rank #2 (Buy).
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