Lindsay Corporation: Lower Wheat Supply and Environment Continue to Grow

Investment Thesis – While there is potential for increased irrigation demand as markets try to increase wheat supplies in light the Ukraine situation, it is likely that the situation will remain volatile.

Lindsay Corporation (LNN), after experiencing a prolonged decline during the second half, has seen a substantial surge to the upside due to the escalating situation in Ukraine in February.

In a previous article, Lindsay Corporation was argued to have the potential to see global demand for irrigation service services continue to rise. This would lead to a long term upside of $208-285.

This article will assess whether the current rebound in stock could be set up to accelerate, especially since the situation in Ukraine is likely to have a significant impact upon food prices in the future.

Performance

Lindsay Corporation’s longer-term trends can be viewed here Balance sheetWe can see that cash-to-inventory ratio has remained relatively constant over the past three years, despite a decline in 2018, while cash reserves relative long-term debt have declined substantially.

Source: Source: Source: Figures from the 2019 and 2021 Annual Reports. Author calculated the ratios

Take a look at more recent photos PerformanceWe can see that current liabilities have increased by a large margin over the past year. However, net earnings have increased by just over 11% in the same period.

Liabilities

Net Earnings

While earnings have continued to grow, we see that Lindsay Corporation has been increasing its inventory and cash reserves over the past few decades. This is normal for a capital-intensive company. Investors will increasingly look for evidence that the increased net inventories is being used to boost sales and long-term earnings.

Looking Forward

The global irrigation market will be affected by the Ukraine situation. Both Russia and Ukraine account for approximately 30The world supplies only 1% of its wheat supply. This means that shortages could cause a rise in irrigation demand on other markets to fill the gap.

For example, North Dakota is the and Kansas is the LargestUnited States wheat-producing states and higher wheat prices are likely encourage farmers to produce more grain to make up for the shortage of European supply.

Despite this, it remains to be seen how the situation will play out in terms of irrigation demand following a reduction in wheat supply.

For example, you could use while Irrigation revenuesFor 2022, North American irrigation revenues increased by 50 percent. International irrigation revenues rose by 94% worldwide. This means that if there is a significant decrease in irrigation demand from Europe due to the current situation in Ukraine, then any potential revenue growth from North America could be offset by a decline on international markets.

Furthermore, while ChinaThe largest wheat crop in the world, but heavy rainfall has prevented the planting of about a third of the normal wheat supplies for next year. China could remain a net importer and there may not be enough opportunities to supply irrigation solutions to the market.

Conclusion

Lindsay Corporation may be able to grow if the demand for irrigation increases in major markets, as well as if attempts are made by the government to replenish wheat supplies. The situation is still volatile, and net earnings are continuing to grow, but cash relative to long-term loans has been falling.

The stock has shown a slight recovery since the beginning of the year. However, the price will be affected by the future trajectory of wheat prices. This is a volatile market given current events.