Lindsay Rides On Irrigation Business, Commodity Prices Ail

On Dec 27, we issued an updated research report on Lindsay Corporation (NYSE:LNN) . The company is poised to gain from growth in the U.S. irrigation business and strong order backlog. Also, the recent tax reform is expected to have a beneficial impact. However, rising commodity prices and lower infrastructure spending are expected to affect results.

U.S. Irrigation Business to Drive Growth

As of November 2017, the U.S. Department of Agriculture (USDA) expects net farm income for fiscal 2017 to be $63.2 billion, up around 3% from the prior fiscal. This would be the first increase in net farm income, following three straight years of decline. Additionally, general economic optimism has also contributed to improved sentiment toward investment, particularly in high yield-enhancing equipment. On the back of these factors, Lindsay projects modest growth in the U.S. irrigation business in fiscal 2018.

Strong Backlog to Aid Results

Lindsay’ order backlog at the end of first-quarter fiscal 2018 surged around 44% to $80.3 million from $55.9 million reported in the comparable quarter of the prior fiscal, reflecting increase in backlog in both Irrigation and Infrastructure segments. The company expects its backlog to be up, driven by the order for the Alex Fraser Bridge project. The value of this order is around $14 million, with delivery expected to begin in third-quarter fiscal 2018.

Tax Reform to Benefit

Notably, Lindsay is expected to gain from the recent tax reform. With the statutory rate declining to 21% from 35%, the company expects this to have a beneficial impact on its effective tax rate. For fiscal 2018, Lindsay will compute tax at the rate of 35% for four months and at 21% for the next eight months.

Higher Commodity Prices A Concern

Lindsay’s irrigation revenues are highly dependent on the need for irrigated agricultural crop production, which, in turn, depends upon many factors, including commodity prices. As of November 2017, corn prices have flared up roughly 5%. Thus, further escalation in commodity prices will hinder margin performance.

Constrained Spending to Hit Infrastructure Segment

In the infrastructure segment, Lindsay continues to witness strong interest, domestically and internationally, in Road Zipper System projects, as well as elevated demand for its road safety products. However, constrained spending for surface transportation projects will impact the segment’s performance.

Share Price Performance

Lindsay has underperformed its industry with respect to price performance in a year’s time. The stock has gained around 15.4%, while the industry has recorded growth of 47.6% during the same time frame.

Zacks Rank & Stocks to Consider

Lindsay currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry are Deere & Company (NYSE:DE) , Caterpillar Inc. (NYSE:CAT) and Kubota Corporation (OTC:KUBTY) . While Deere sports a Zacks Rank #1 (Strong Buy), Caterpillar and Kubota carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Deere has a long-term earnings growth rate of 8.2%. Its shares have rallied 53.9%, year to date.

Caterpillar has a long-term earnings growth rate of 10.3%. So far this year, shares of the company have gained 69.9%.

Kubota has a long-term earnings growth rate of 10.7%. The company’s shares have been up 36.1% during the same time frame.

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