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Lindsay's Capital Allocation Initiative Shows Potential

On Sep 18, 2014, we issued an updated research report on Lindsay Corporation (LNN). The designer and manufacturer of self-propelled center pivot and lateral move irrigation systems is poised to benefit from its capital allocation plan, sustained growth in infrastructure business and development of new Road Zipper system. However, lower crop prices and political instability in Iraq remain matters of concern.

In Jan 2014, Lindsay announced its capital allocation plan, which lays out the company’s intent to make investments that will lead to revenue and earnings growth and at the same time enhance shareholder return. Lindsay intends to repurchase shares worth $100 million to $150 million over the next 24 months and increase its dividend annually.

In line with its strategy, Lindsay’s board of directors approved a 4% increase in regular quarterly dividend to $0.27 per share on Jul 25. Annualized, this represents a payout of $1.08 per share, up 3.8% from the current annual dividend of $1.04 per share.

Lindsay also targets a cash balance of $60 million to $75 million for 2014, according to the capital allocation plan. Capital expenditure is projected at $20 million to $25 million annually, over the next 3 years. The company also intends to spend $100 million to $150 million on acquisitions over the next three years using cash and debt. Acquisitions are expected to help in achieving the annual revenue growth goal of 10–15%.

Further, the company remains optimistic about growth in global applications of technologies and a multi-year highway bill with similar or improved funding levels. Lindsay will also benefit from the expansion of global irrigation equipment manufacturing capacity, sustained progress in the infrastructure business and development of new Road Zipper system.

However, lower crop prices are likely to pressure irrigation demand during the rest of the year, in turn affecting earnings of the company. Additionally, the U.S. Department of Agriculture (:USDA) estimated U.S. 2014 net farm income to be $113.2 billion, down about 14% from 2013 forecast of $131.3 billion.

Lindsay also reported a decrease in backlog in third-quarter fiscal 2014 due to decline in orders from the international markets. The prior-year irrigation backlog included an equipment and installation contract in Iraq, of which $2.6 million remained in backlog at May 31, 2014. If Lindsay fails to complete its work, it will not be able to realize the remaining amount due under the contract.

Furthermore, the estimates for Lindsay moved downward in the past 90 days. The Zacks Consensus Estimate for 2014 decreased 5.6% to $4.87 per share and for 2015 the same reduced 9.3% to $4.30 per share. Lindsay has also underperformed the Zacks Consensus Estimate in each of the four trailing quarters with an average negative surprise of 10.01%.

Lindsay carries a Zacks Rank #4 (Sell).

Other Stocks That Warrant a Look

Some better-ranked players in the same industry include ACCO Brands Corporation (ACCO), AO Smith Corp. (AOS) and ARC Document Solutions, Inc. (ARC). All these carry a Zacks Rank #2 (Buy).

Read the Full Research Report on LNN
Read the Full Research Report on AOS
Read the Full Research Report on ACCO
Read the Full Research Report on ARC


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