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Lindsay Corporation: A Free Cash Flow Desert

Aug. 07, 2018 1:55 PM ETLindsay Corporation (LNN)31 Comments


  • Year to date, Lindsay Corporation has generated negative free cash flow after dividends. Q4, given some management pessimism, likely does not improve that.
  • 2020 objective of just 200bps of operating margin expansion shows how impaired agriculture businesses are. International growth opportunities are low and domestic sales have been light.
  • US farm income is set to fall by high single digits this year, with another decline likely next year. Farmers have bigger problems than buying $80,000 irrigation systems.
  • Even if management hits its targets, Lindsay Corporation still trades expensively at <5% free cash flow yield.
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The market continues to be incredibly fickle in who it rewards and punishes in 2018, and Lindsay Corporation (NYSE:LNN) has remained remarkably resilient. Adjusted operating margins in the company's core irrigation business were the lowest they have been in a decade last quarter, hit hard by poor international project growth (especially in Brazil), freight increases, commodity costs, and a book filled with lower margin projects. Even despite that weakness, management alluded to the fact that there was likely some pull-forward in sales, with customers buying ahead of likely pricing increases. The company has generated no meaningful cash flow this year, and while improvements continue to be made in the infrastructure business, those results are still small and realized profit there can be lumpy depending on contract timing.

Growth expectations are tepid, and shares remain prohibitively expensive: More than 14x 2019 EBITDA expectations. In many ways, I see the company being treated as a technology company given its FieldNET and Growsmart products, both of which Lindsay states are one of the few options for remote monitoring and control of irrigation equipment. Short interest continues to build off an established low, and I believe there are legs to that negative sentiment. In 2016, more than 3.3mm shares were held short, triple the rate of today. While the short side did not make money back then, I suspect that bears will take another run at Lindsay Corporation if results continue to come in weak. Shares have 30% downside in my opinion.

Business Overview, Turnaround Plan

Lindsay Corporation is a global manufacturer and marketer of water management and road infrastructure products and services. With a history stretching back to the 1950s, the company was built off the back of its agricultural irrigation equipment sales, growing from a regional player to an international giant in the space. While the

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This article was written by

Michael Boyd profile picture
Compelling income and growth plays in the energy sector.

Author of Energy Investing Authority

Top 1% Analyst According to TipRanks

I have a decade of experience in both the investment advisory and investment banking spaces, with stints in portfolio management, residential mortgage-backed securities, derivatives, and internal audit at various firms. Today, I am a full-time investor and "independent analyst for hire" here on Seeking Alpha.

Analyst’s Disclosure: I am/we are short LNN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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