Despite the challenging macroeconomic conditions, numerous countries are implementing programs to raise the production of high-quality crops and increase overall agricultural productivity in response to the sharp rise in the global population and the ever-rising need for food products.
Before diving deeper into their fundamentals, let’s discuss what’s happening in the agriculture industry.
Due to supply-related issues brought on by the Ukraine-Russian war, the agriculture sector took a significant hit last year. Agri-commodity prices increased as a result of supply chain restrictions. The agriculture sector will remain in the spotlight given that food shortages due to supply disruptions, changing weather patterns, and geopolitical concerns.
The increased demand for food will help drive the profitability of agricultural stocks. Apart from the rising need for advanced agriculture tools, there has been a shortage of laborers at farms, driving the demand for agriculture equipment.
Moreover, the agriculture industry is benefiting from the government’s Fertilizer Product Expansion Program (FPEP), which was introduced in 2022, and is helping boost the domestic production of fertilizers.
To promote domestic competitiveness and counteract rising fertilizer costs brought on by the conflict in Ukraine, the USDA made $500 million available under the FPEP in 2022. Up to $400 million more in FPEP finance is now being provided by the Commodity Credit Corporation.
The global agriculture market is expected to grow at a CAGR of 9.1% to reach $19 trillion by 2027. Investors' interest in agriculture stocks can be gauged from the VanEck Vectors Agribusiness ETF’s (MOO) 5.5% returns over the past month.
Let’s take a closer look at the fundamentals of the featured stocks.
Archer-Daniels-Midland Company (ADM)
ADM procures, transports, stores, processes, and merchandises agricultural commodities, products, and ingredients in the United States, Switzerland, the Cayman Islands, Brazil, Mexico, Canada, the United Kingdom, and internationally. The company operates in three segments: Ag Services and Oilseeds, Carbohydrate Solutions, and Nutrition.
On June 2, 2023, ADM announced the launch of a $30 million probiotics production facility in Valencia, Spain, helping make a five-fold increase to its production capacity to 50 metric tons per year. This addresses the rising global demand for health and well-being products, particularly in the U.S., Asia-Pacific, and Europe.
The site produces both probiotics and postbiotics, supporting ADM's growth in this sector and aiming to triple its customer base in five years. It will also help the company fulfill its expansion strategy in the health and wellness revenue from over $500 million in 2022 to $2 billion within 10 years.
In terms of the trailing-12-month levered FCF margin, ADM’s 5.50% is 73.2% higher than the 3.17% industry average. Likewise, its 4.15% trailing-12-month net income margin is 15.1% higher than the 3.61% industry average. Furthermore, its 1.70x trailing-12-month asset turnover ratio is 92.7% higher than the 0.88x industry average.
ADM’s revenues for the fiscal second quarter ended June 30, 2023, came in at $25.19 billion. The company’s gross profit came in at $1.88 billion. Its adjusted net earnings for the period came in at $1.03 billion. Its adjusted EBITDA came in at $1.63 billion. Additionally, its adjusted earnings per share came in at $1.89.
Analysts expect ADM’s revenue for the quarter ending March 31, 2024, to increase 0.9% year-over-year to $24.29 billion. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 14.4% to close the last trading session at $85.85.
ADM’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
AGCO Corporation (AGCO)
AGCO manufactures and distributes agricultural equipment and related replacement parts worldwide.
On June 26, 2023, AGCO welcomed True Ag & Turf to its dealership network, expanding in Nebraska with existing dealerships merging under the True Ag brand while retaining local management and staff.
Bill Hurley, VP of Distribution at AGCO, said, "This new dealership will bring full line access to the best of our brands, including Massey Ferguson and Fendt, and that means greater precision ag technologies and superior services to growers in eastern Nebraska."
In terms of the trailing-12-month EBIT margin, AGCO’s 11.88% is 22% higher than the 9.74% industry average. Likewise, its 7.84% trailing-12-month net income margin is 25.8% higher than the 6.23% industry average. Furthermore, its 1.33x trailing-12-month asset turnover ratio is 65.4% higher than the 0.81x industry average.
For the second quarter ended June 30, 2023, AGCO’s net sales increased 29.8% year-over-year to $3.82 billion. Its gross profit rose 45.6% year-over-year to $1.01 billion. Its net income rose 79.6% year-over-year to $319.20 million. Additionally, its EPS came in at $4.26, representing an increase of 79.7% year-over-year.
Street expects AGCO’s EPS and revenue for the quarter ended September 30, 2023, to increase 5.4% and 11.5% year-over-year to $3.35 and $3.48 billion, respectively. It surpassed the Street EPS estimates in each of the four trailing quarters. Over the past year, the stock has gained 26.4% to close the last trading session at $129.30.
AGCO’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #2 in the same industry. It has an A grade for Value and a B for Growth, Momentum, and Sentiment. In addition to the POWR Ratings grades I’ve just highlighted, you can see AGCO’s ratings for Stability and Quality here.
ICL Group Ltd (ICL)
Headquartered in Tel Aviv, Israel, ICL and its subsidiaries operate as a specialty minerals and chemicals company worldwide. It operates in four segments: Industrial Products, Potash, Phosphate Solutions, and Growing Solutions.
On August 9, 2023, ICL announced the ground building of a $400 million lithium iron phosphate (LFP) battery materials plant in St. Louis, to be operational by 2025. The plant will help meet the U.S. demand for energy storage and EVs. The plant will help ICL take rapid strides toward the highly lucrative LFP sector of the battery industry.
This supports the shift toward safer, lower-cost cathode materials in EVs and energy storage.
On June 27, 2023, ICL launched a new line of water-soluble fertilizers called Nova in North America, including products like Nova FINISH, Nova PULSE, Nova ELEVATE, and Nova FLOW, designed to enhance crop nutrition solutions with high solubility and compatibility with herbicides.
In terms of the trailing-12-month EBIT margin, ICL’s 26.32% is 139.2% higher than the 11% industry average. Likewise, its 16.47% trailing-12-month net income margin is 151.7% higher than the 6.54% industry average. Furthermore, its 11.87% trailing-12-month levered FCF margin is 200.5% higher than the 3.95% industry average.
ICL’s sales for the second quarter ended June 30, 2023, came in at $1.83 billion. Its gross profit came in at $645 million. Its adjusted net income attributable to shareholders came in at $163 million. Additionally, its adjusted EBITDA and EPS came in at $441 million and $0.13, respectively.
ICL surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past month, the stock has gained 16.1% to close the last trading session at $6.64.
It’s no surprise that ICL has an overall rating of B, which translates to a Buy in our POWR Ratings system.
It has an A grade for Value and a B for Quality. It is ranked #4 in the Agriculture industry. To see the additional ratings of ICL for Growth, Momentum, Stability, and Sentiment, click here.
MariMed Inc. (MRMD)
MRMD engages in cultivating, producing, and dispensing medicinal and recreational cannabis in the United States and internationally. The company sells flowers and concentrates under the Nature's Heritage brand; chewable cannabis-infused mint tablets under the brand Kalm Fusion.
On June 12, 2023, MRMD announced the opening of a medical dispensary, Thrive Wellness Dispensary, in Tiffin, Ohio. This marks their first operational dispensary in Ohio and the 11th they own or manage across five states.
The dispensary is located at 318 W. Market Street and is part of MRMD's plan to expand into high-growth states like Ohio. They aim to explore further opportunities for growth in Ohio, in alignment with state regulations.
In terms of the trailing-12-month EBIT margin, MRMD’s 13.03% is significantly higher than the 0.09% industry average. Likewise, its 0.86x trailing-12-month asset turnover ratio is 133.6% higher than the 0.37x industry average. Furthermore, its 17.53% trailing-12-month EBITDA margin is 293.7% higher than the 4.45% industry average.
MRMD’s revenues for the second quarter ended June 30, 2023, rose 10.7% year-over-year in at $36.52 million. The company’s gross profit rose 9.1% year-over-year to $16.38 million. Its non-GAAP net income came in at $569 thousand. Its adjusted EBITDA came in at $6.31 million.
For the quarter ending September 30, 2023, analysts expect MRMD’s revenue to increase 16.8% year-over-year to $39.60 million. The stock declined 10.2% year-to-date to close the trading session at $0.32.
MRMD’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, translating to a Buy in our proprietary rating system.
It has a B grade for Sentiment and Quality. It is ranked #11 in the same industry. Click here to see the additional POWR ratings for MRMD (Growth, Value, Momentum, and Stability).
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ADM shares were trading at $86.25 per share on Thursday morning, up $0.40 (+0.47%). Year-to-date, ADM has declined -6.04%, versus a 17.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.4 Agriculture Stocks to Start Chasing After appeared first on StockNews.com