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On Thursday, RBC Capital Markets adjusted its stance on AG Growth International Inc (AFN:CN) (OTC: AGGZF), downgrading the stock from Outperform to Sector Perform and significantly reducing the price target to Cdn$45.00 from the previous Cdn$75.00. The revision by RBC Capital follows a recent unexpected cut to the company's implied fourth-quarter guidance and a cautious projection for the year 2025. The stock, currently trading near its 52-week low of $27, has seen a significant -33.47% decline over the past year. According to InvestingPro data, five analysts have recently revised their earnings expectations downward for the upcoming period.
The firm acknowledged AG Growth International's effective operational improvements, which have been reflected in higher and sustained margins, even amid challenging market conditions. The company maintains a healthy gross profit margin of 32.05% and has demonstrated its financial stability by maintaining dividend payments for 21 consecutive years. Analysts at RBC Capital see potential for long-term growth driven by agricultural infrastructure spending. Despite these positives, concerns have arisen due to several factors that could impact the stock's performance. InvestingPro subscribers can access 10+ additional key insights about AG Growth's financial health and market position through the comprehensive Pro Research Report.
The factors leading to the downgrade include last week's unexpected revision of the fourth-quarter guidance, a tepid outlook for the company's prospects in 2025, and the current lack of market visibility. Additionally, uncertainties surrounding tariffs and delays in achieving debt reduction and growth plans were cited as potential drags on the company's shares.
In their commentary, RBC Capital highlighted that while AG Growth has shown commendable operational improvement and growth potential, the recent guidance cut and the lukewarm outlook for the future, combined with market uncertainties, may suppress the stock's performance until there are clear indications of a recovery.
The revised price target of Cdn$45.00, down from Cdn$75.00, reflects the new challenges and uncertainties that AG Growth faces. With a market capitalization of $544.43 million and a relatively high beta of 2.24, the stock has shown considerable volatility. The firm's analysts have tempered their expectations as the company navigates through the current market environment and works towards its long-term objectives. Based on InvestingPro's Fair Value analysis, the stock currently appears to be undervalued, though investors should note the high P/E ratio of 32.58x and anticipated sales decline for the current year.
In other recent news, Ag Growth International Inc. (AGI) reported mixed results for the third quarter of 2024, facing challenges in the US farm market but demonstrating resilience with a strong international presence. The company reported consolidated revenues of $357 million and adjusted EBITDA of $69 million, representing declines of 13% and 19% year-over-year, respectively. Despite these headwinds, AGI highlighted robust international commercial activity, particularly in Brazil, and a record level order book.
The company is preparing a share repurchase program, demonstrating management's view of the stock's undervalued price. Full-year adjusted EBITDA is projected to be around $280 million, with margins near 19%. AGI is also targeting a net debt leverage ratio of 2.5x by 2025, with current leverage sitting at 3.1x.
These recent developments suggest AGI's strategic focus on international growth and operational initiatives, despite challenges in the US farm market. The company's diverse business model and solid project pipeline are expected to drive stronger performance in 2025, according to AGI's President and CEO, Paul Householder, and CFO Jim Rudyk.
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