Agco Outperforms in N. America
Agco Corp. (AG) reported second quarter EPS of $1.34, above our estimate at $0.90, due to a smaller-than-expected loss in North America and continued robust growth in South America and the EMEA [Europe, Middle East and Asia] region. The sales growth was broad-based, with every geographic region posting a double-digit sales increase.
The growth in commercial farm income and acreage is driving demand for high-horsepower tractors. While North America reported a loss, we expect a second-half profit recovery on the back of favorable currency translation, higher margins and double-digit sales growth. Our target price is $63.50, or 16.4x our FY08 EPS estimate.
We were extremely pleased by the narrower loss in North America. AG reported a loss of $1.3 million, which was better than our expectations of -$11.8 million, and better than the year-ago level of -$14.8 million. Strong sales growth of 36% and improved margins offset adverse currency impacts on products sourced from Brazil and Europe.
Sales to the commercial farmer continue to offset slower retail sales of tractor and combines. We expect professional farming sales to remain strong amid record income. With a stronger U.S dollar, double-digit revenue growth, and margin expansion on professional farm equipment sales, the NA region should return to profitability by the third quarter of FY08.
AG expects FY08 net sales to increase in a range of 26-28% on account of continued, positive market conditions in South America and Eastern Europe and higher product pricing. The management is targeting FY08 EPS to be in the range of $3.60-$3.70. Free cash flow is expected to be in the range of $175 million to $200 million.
Read the full analyst report on AG
AXA Already Trades at Premium
AXA Group S.A. (AXA) through its subsidiaries provides financial protection and asset management services primarily in Western Europe, North America, the Asia-Pacific region, the Middle East and Africa.
The company has positive cash flow in all of its operations, and an increase in interest rates will be positive for the reinvestment of its cash flow. In addition, higher interest rates will lead to higher profit margins in the company's guaranteed insurance products. We are forecasting a 5% equity return for the market for the next six months. If there is a slight improvement in equity markets, this would feed into stronger earnings for AXA's asset management, life insurance, and property and casualty (P&C) insurance segments, as the value of its equity portfolios would rise.
While we still think regard AXA as a very well managed company, we do not believe it should be at an even higher premium than this. Also it might turn out that our forecast for the market turns out to be too optimistic.
