On Dec 16, Zacks Investment Research upgraded Lindsay Corporation (LNN) to a Zacks Rank #1 (Strong Buy). The manufacturer of self-propelled center pivot and lateral move irrigation systems is poised to benefit from its capital allocation plan, growth in infrastructure business and improvement in technology offering.
Why the Upgrade?
Shares of Lindsay started escalating and moved nearly 11% higher after the company reported improved fourth-quarter fiscal 2014 (ended Aug 31, 2014) results on Oct 9. Earnings increased around 10% year over year to 89 cents per share. Moreover, the reported figure beat the Zacks Consensus Estimate of 56 cents.
The company will continue to invest in growth and productivity initiatives, both organic and inorganic, utilizing its strong balance sheet position. In addition, Lindsay Corp.’s continuous focus on expansion of its competitive advantage in product and service offerings as well as its capacity in international markets will assist growth.
In Jan 2014, Lindsay announced its capital allocation plan, which lays out the company’s intent to make investments that will lead to revenue and earnings growth and at the same time enhance shareholder return. Per the plan, the company’s intention was to repurchase shares worth $100 million to $150 million over the next 24 months and increase its dividend annually. In line with its strategy, during fiscal 2014, Lindsay repurchased 497,899 shares for $41 million. It has $109 million left to buy back under its $150 million repurchase authorization.
Lindsay also targets a cash balance of $60 million to $75 million for 2014, according to the capital allocation plan. Capital expenditure is projected at $20 million to $25 million annually, over the next 3 years. The company also intends to spend $100 million to $150 million on acquisitions over the next three years using cash and debt. Acquisitions are expected to help in achieving the annual revenue growth goal of 10–15%.
On Nov 4, Lindsay entered into a definitive agreement to acquire Elecsys Corp. for $70.5 million. Elecsys is a provider of machine-to-machine (M2M) technology and custom electronic systems to a variety of end markets. The deal is expected to close in Jan 2015 and Lindsay expects it be accretive in the first year. The acquisition will expand and enhance the company’s technology offering and also provide additional platforms for growth, as along with agriculture and water markets, Elecsys also serves the oil, gas, electricity, rail, aerospace, military, security and safety markets.
Further, Lindsay’s infrastructure products segment has improved its profit profile and delivered growth despite constrained government spending. In Aug 2014, the U.S. government enacted a $10.8 billion temporary highway-funding bill to fund highway and bridge projects, the latest in a series of short-term funding bills over the last several years. This will boost the segment’s performance in the next few quarters. However, unless a long-term U.S. Highway Bill is passed, future growth of the infrastructure segment remains questionable.
Nevertheless, in the long run, Lindsay will benefit from the expansion of its global irrigation equipment manufacturing capacity. In addition, rise in population, increased food production and efficient water use bodes well for the company’s future growth.
Other Stocks to Consider
Some other stocks in the same sector that warrant a look include Alamo Group, Inc. (ALG), Briggs & Stratton Corporation (BGG) and ARC Document Solutions, Inc. (ARC). While Alamo Group sports a Zacks Rank #1 (Strong Buy), Briggs & Stratton and ARC Document Solutions carry a Zacks Rank #2 (Buy).
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