By Sam Boughedda
Baird analysts told investors in a research note Thursday that Caterpillar (NYSE:CAT) should consider acquiring AGCO Corporation (NYSE:AGCO).
The analysts explained that CAT's history with agriculture is complicated, but the development of precision has "materially improved" agriculture industry dynamics, with AGCO an "attractively valued asset that would allow CAT a meaningful re-entry in the space."
They argued that the past five years have shown that the agriculture vertical is emerging as the machinery leader in the large-scale deployment of precision/autonomy "with retrofit of the existing fleet a large future opportunity."
"Currently, CAT has no exposure to this lucrative vertical, recall that CAT exited the Ag space with the sale of its Challenger tractor product line to AGCO and combine JV to Claas in 2002," wrote the analysts.
"AGCO will thus bring CAT a broad portfolio (tractors, combines, planters) along with a growing precision offering (Precision Planting, Fuse)."
They added that CAT will also be able to use its sizable digital and R&D capabilities to accelerate AGCO's tech stack development and improve its cost structure by integrating CAT engines/components in AGCO machines.