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Investing.com -- Citi downgraded AGCO Corporation to Neutral from Buy in a note Friday, citing a more balanced risk/reward profile following a sharp rally in the stock and a shift in market expectations.
“Based on our mid-cycle earnings and valuation framework, we think AGCO shares have a more balanced risk/reward setup at current levels,” Citi analysts wrote in a note to clients.
Since upgrading the stock to Buy in April, AGCO shares have risen more than 30%, now trading at around 25 times Citi’s 2025 earnings estimate.
Citi noted that market sentiment has adjusted significantly. “We think the cycle momentum is better understood, and the markets are now baking in a much less draconian tariff environment,” analysts said.
While Citi expects earnings growth beyond 2025, it models AGCO reaching its mid-cycle EPS estimate of $9.65 only over the long term. The firm forecasts EPS of $7.05 by 2027.
Despite the downgrade, Citi still sees potential upside. “We do expect earnings growth beyond 2025 for AGCO, led by a likely recovery in Europe and South America ag equipment sales,” the analysts said. They also cited improving sales at PTx Trimble and distribution synergies as possible drivers.
However, Citi emphasized that the Trimble acquisition remains a “show-me” story, particularly in terms of revenue synergies.
Integration challenges and increased competition in the precision agriculture retrofit market are said to pose risks. “We see the risk of the retrofit pie shrinking over time as more precision technology is put into machines in the factory,” the note stated.
While Citi acknowledged continued strong demand for AGCO’s precision retrofit products, it warned that the overall opportunity may narrow as original equipment manufacturers increasingly install precision systems during production.