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Is Lindsay Corporation Stock Likely to Recover After a 25% YTD Plunge?

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Is Lindsay Corporation Stock Likely to Recover After a 25% YTD Plunge?

In the year-to-date period, Lindsay Corporation’s (LNN) stock has seen a significant decline of 25%, compared to a 5.1% decrease in the overall manufacturing farm equipment industry. This poor performance can be attributed to the company’s weak irrigation volume in the last three quarters of fiscal year 2023, which is a result of farmers delaying their investment decisions due to economic uncertainty.

Impact of Lower Irrigation Revenues

LNN’s revenue growth has decelerated throughout the year, with a 6% increase in the first quarter of fiscal year 2023, followed by a decline of 16.9% and 23.2% in the second and third quarters, respectively. The decrease in revenue is primarily due to a 14% decline in irrigation revenues, caused by low unit sales volume in North America.

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According to the U.S. Department of Agriculture, net farm income in the United States is projected to decrease by 22.8% in 2023. This decrease in farm income, along with higher interest rates and general economic uncertainty, has negatively affected farmer sentiment and their capital investments, which has impacted Lindsay’s results.

International irrigation revenues for the nine months ended May 31, 2023, were down 20% year over year, primarily due to the completion of a large Egypt project in the previous year and lower sales volumes in Brazil, Australia, Ukraine, and Russia. Brazil’s sales and order activity were delayed due to the federal government transition in the second and third quarters.

In addition to lower revenues, Lindsay has faced challenges such as rising operating expenses and supply-chain constraints. However, there are factors that indicate a potential comeback for the stock:

Factors Pointing Towards Recovery

Improvement in Commodity Prices

Recently, corn and soybean prices have increased due to unfavorable weather conditions, which may boost order levels for Lindsay. The company has also been able to maintain its pricing while facing moderate inflationary pressure on raw material and logistics costs, which supports its revenue performance.

Potential Increase in Demand

The increasing farm size in the United States has led to a higher demand for farming equipment. Farmers are turning to mechanized irrigation to replace labor, benefiting Lindsay. Additionally, the need to replace aging equipment will sustain demand. The company also has growth opportunities in international markets with less developed irrigation use.

The infrastructure business of Lindsay is driven by government spending on road construction and improvements. The introduction of incremental federal funding for transportation projects is expected to boost the segment’s revenues starting in fiscal year 2024.

Lindsay has a strong balance sheet, providing the capacity and flexibility for organic growth initiatives, strategic acquisitions, and returning capital to shareholders.

Other Industrial Products Stocks to Consider

For investors looking for alternative options in the Industrial Products sector, Caterpillar Inc. (CAT), Astec Industries, Inc. (ASTE), and Eaton Corporation plc. (ETN) are better-ranked stocks. Caterpillar and Astec have a Zacks Rank #1 (Strong Buy), while Eaton has a Zacks Rank #2 (Buy).

Disclaimer: The views and opinions expressed herein are those of the author and do not necessarily reflect the views and opinions of Nasdaq, Inc.