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Lindsay (LNN) to Gain Amid Headwinds in Road Safety Products

We issued an updated research report on Lindsay Corporation LNN on Jun 5.

Lindsay is poised to gain from improved activity levels in the international irrigation and infrastructure markets, investments in product development and acquisitions. Near-term headwinds to road safety products, reduced farm income and cautious government spending are expected to hurt results.

Notably, Lindsay continues to recognize benefits from the water-related acquisitions completed over the past few years. These acquisitions aided the company boost its gross margins, provided incremental revenue and profits derived from non-agricultural markets, and delivered platforms for future growth.

Further, Lindsay’s acquisition of Elecsys Corporation is a strategic addition to the company’s long-term goal of leading the market in advanced technologies for managing water-usage efficiency. The acquisition will contribute to the development of Lindsay’s technology platform as well as improve the cost and quality of electronic technologies. Further acquisitions will drive growth.

Lindsay’s most significant opportunities for growth over the next several years remain in international markets, where irrigation use is less developed and demand is driven primarily by food security, water scarcity and population growth. Moreover, increased food production, efficient water use and infrastructure upgrades are likely to drive long-term growth.

However, net farm income in the U.S. is projected to be at the lowest level in 2017, leading to uncertainty among growers and resulting in persistent downward pressure on irrigation equipment demand and pricing. Additionally, global or economic slowdowns could hurt government spending and will have a resultant negative impact on demand for Lindsay’s products.

Domestically, the Federal Highway Administration has mandated a change to certification standards for road safety products to be phased, beginning in 2018. This change requires additional research and development spending, and can have an impact on the competitive positioning of the company’s highway safety products.

Lindsay has, thus, underperformed the Zacks categorized Machinery-Farm industry over the past one year. The stock gained 15.2%, falling way behind the Zacks sub-industry’s gain of 38.1% over the said time frame.

Lindsay currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked stocks in the sector include AGCO Corporation AGCO, Deere & Company DE and Altra Industrial Motion Corp. AIMC. All three stocks boast a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AGCO has an average positive earnings surprise of 40.39% for the trailing four quarters. Deere has an average positive earnings surprise of 70.41% for the last four quarters, while Altra Industrial Motion generated an impressive average positive earnings surprise of 15.93% over the past four quarters.

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