Jefferies reiterates Buy rating on AGCO stock following TAFE agreement

Investing.com - Jefferies has reiterated a Buy rating and $120.00 price target on AGCO Corporation (NYSE:AGCO), currently trading at $108.63, following the finalization of an agreement with Tractors and Farm Equipment Ltd (TAFE) that limits TAFE’s ownership to 16.3%. The agricultural equipment manufacturer, with a market capitalization of $8.1 billion, has demonstrated strong financial health according to InvestingPro analysis, maintaining dividend payments for 13 consecutive years.

The agreement ends all commercial ties and legal proceedings between the two companies while reinforcing governance clarity. Under the terms, TAFE retains voting rights for its AGCO shares but relinquishes board representation, and AGCO will divest its stake in TAFE for $260 million. With a current ratio of 1.53, AGCO’s liquid assets comfortably exceed its short-term obligations, positioning it well for this transaction.

The resolution enables AGCO to resume share repurchases without increasing TAFE’s ownership stake, which had previously been impossible as TAFE refused to participate in repurchases. Since 2021, AGCO has used special dividends totaling approximately $1.2 billion to distribute excess cash to shareholders. InvestingPro analysis shows the company maintains a healthy free cash flow yield of 6% and has generated $501.2 million in levered free cash flow over the last twelve months.

According to Jefferies, a share repurchase program of approximately $300 million would result in about $0.17 per share EPS tailwind at the current share price. The firm notes that while repurchases will vary with the business cycle, capital returns are likely to exceed the $300 million annual level over the next cycle. Analysts tracked by InvestingPro have set price targets ranging from $84 to $140, with the company currently trading near its Fair Value estimate.

The agreement also terminates all commercial agreements between the companies with agreed wind-down provisions, while TAFE will maintain exclusive ownership of the Massey Ferguson brand in India, Nepal, and Bhutan.

In other recent news, AGCO Corporation announced a series of agreements with Tractors & Farm Equipment Limited (TAFE) to resolve ongoing disputes and sell its 20.7% stake in TAFE for $260 million. This agreement includes the transfer of the Massey Ferguson brand rights in India, Nepal, and Bhutan to TAFE, which had been the brand licensee for over 60 years. The transaction is subject to regulatory approvals in India, and once completed, TAFE will maintain a 16.3% stake in AGCO and participate in future share buyback programs. Analysts from Raymond (NSE:RYMD) James have reiterated a Market Perform rating on AGCO, while Citi has maintained a Neutral rating with a price target of $110.00. Additionally, Truist Securities has maintained a Buy rating with a price target of $112.00, highlighting AGCO’s expansion of the premium Fendt brand in South America and North America. AGCO’s strategy aims to increase market share in the high horsepower segment, leveraging its existing manufacturing infrastructure to meet growing demand. The company is also focusing on improving profit margins through the sale of higher-margin Fendt products and the adoption of precision agriculture technology. These developments reflect AGCO’s ongoing efforts to strengthen its market position and resolve outstanding issues with TAFE.

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