Agco Could Reap A Golden Harvest

Few expect tilling the soil to be earth-shattering. But to some Street pros, farm-equipment maker AGCO (AG) comes close to providing excitement in an otherwise dry field. What's the deal?

Nothing but surprises, really. The company, which in June acquired the international operations of heavy-machinery maker Massey-Ferguson, has consistently exceeded analysts' projections. In 1994's fourth quarter, AGCO profits jumped 95%, to $1.11 a share, up from 57 cents a year ago--sharply higher than the 92 cents forecast.

That has made analysts hike their long-term projections. Diane Graboski of Dillon Read has raised her 1995 figure to $4.40 a share and 1996's to $5.05. The company made $3.43 last year. But one AGCO insider thinks those numbers are low: With the integration of Massey-Ferguson running ahead of schedule, this pro figures AGCO will continue to outpace forecasts. Bolstered by strong exports, the U.S. farming outlook has greatly improved.

AGCO is eyeballing a major European equipment maker that, if acquired, would make AGCO No.1 in Western Europe. A larger European company, however, is also after that equipment maker.

AGCO is a compelling buy--compared with its competitor Deere, according to Tobias Levkovich of Smith Barney. He says that Deere trades at a price-earnings ratio of more than 9, vs. AGCO's 6.2, based on his 1996 estimate of $5.10 a share. AGCO Chairman and CEO Bob Ratliff doesn't doubt that he will surpass the Street's estimates again. Our secret, he says, is simple: "No excess capacity, excellent distribution, and multiple equipment brands."

Before it's here, it's on the Bloomberg Terminal.