Lindsay: Irrigation and Infrastructure

02/03/2017 9:00 am EST


Stephen Leeb

Founder and Research Chairman, Leeb Group

In the past when we’ve talked about Lindsay Corp. (LNN) — a holding in our Growth Portfolio — we’ve focused on it as a long-term agricultural play because of its leading position as a manufacturer and marketer of irrigation systems, notes Stephen Leeb, editor of The Complete Investor.

In a world in which rising populations will make it increasingly urgent to produce more food, companies like Lindsay that excel at helping farmers grow crops more efficiently will be essential to the world and excellent bets as investments.

The numbers are compelling: the Food and Agriculture Organization projects worldwide food production must increase 70 percent by 2050 to adequately feed the world.

But while over the longer term Lindsay’s agricultural operations will generate big gains, another segment is propelling growth at the moment and provides a second reason to like the company: its lesser-known infrastructure segment.

The company manufactures movable road barriers, crash cushions, railroad signals and structures, and various other products used in road construction and to enhance road safety.

Infrastructure sales have grown at a rapid clip recently, boosting the bottom line at a time when irrigation segment sales have slowed.

For the fourth quarter of 2016, revenues from infrastructure were 24 percent higher than for the year-earlier period, while operating margins rose to 28 percent from 15 percent.

In particular Lindsay noted strong gains for its Road Zipper, a barrier transfer machine used to move heavy concrete lane dividers to relieve traffic congestion.

The division stands to benefit from the Obama administration’s highway bill (the nation’s first long-term transportation spending package in a decade), which will pump an estimated $305 billion into road construction projects over the next five years.

Trump’s promise to spend $550 billion to $1 trillion on U.S. infrastructure, particularly on roadway improvements, would be a further tailwind for Lindsay’s products.

The gains in Lindsay’s infrastructure division are particularly welcome at this juncture as revenues from the irrigation segment have been declining for three years.

Ideal growing conditions have resulted in record crop production that has lowered crop prices and hurt farmers’ income, leading them to postpone purchasing new equipment. The company anticipates more of the same through 2017.

Based on its current P/E, Lindsay may appear expensive. But its leading position in irrigation and its strong stake in infrastructure nearly ensure long-term growth on multiple fronts. The company’s 1.33 percent dividend yield further sweetens the pot for investors.

The long-term forecast for Lindsay remains exceptional. The likelihood of ideal growing conditions continuing for many more years is slim, and meanwhile more and more people are populating the planet, all of whom will need to eat.

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