4 Agriculture Operations Stocks to Watch Amid Elevated Costs

Industry Overview - The Zacks Agriculture – Operations industry is facing challenges such as fluctuating commodity prices, rising input costs, trade uncertainties, and elevated operational expenses, impacting productivity and profitability [1][3] - The industry includes companies involved in the production, transportation, storage, processing, and distribution of agricultural commodities, as well as those engaged in dairy operations and food ingredient development [2] Current Challenges - Elevated costs due to inflation have led to increased production costs, squeezing profit margins for agricultural companies [3] - Companies are experiencing higher selling, general and administrative (SG&A) expenses due to performance-related compensation and technology investments [4] Export Projections - The U.S. Department of Agriculture projects agricultural exports for fiscal 2024 to reach $170.5 billion, an increase of $1 billion from previous forecasts, driven by livestock, dairy, grains, and feeds [4] Demand Trends - There is a robust demand for organic products as consumers increasingly seek healthier food options, prompting companies to adopt organic production techniques [5] - Innovations in food processing and strong demand from emerging markets are expected to support industry growth [5] Industry Performance - The Zacks Agriculture – Operations industry ranks 148 out of over 250 Zacks industries, placing it in the bottom 41%, indicating dull near-term prospects [6] - The industry has underperformed the S&P 500, with a collective decline of 16.4% over the past year compared to a 25.7% increase for the S&P 500 [8] Valuation Metrics - The industry is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 12.81X, significantly lower than the S&P 500's 20.86X and the sector's 17.82X [9] Company Highlights - Adecoagro (AGRO): The company has seen a 35.4% increase in shares over the past year, with a consensus estimate for 2024 earnings at $1.69 per share, suggesting a 16.6% growth from the previous year [12] - Corteva (CTVA): The company has a Zacks Rank 3 and has delivered an earnings surprise of 43.9% on average over the past four quarters, with a 1.7% increase in stock price over the past year [15] - Archer Daniels Midland (ADM): The company has a Zacks Rank 3 and has experienced a 16.6% decline in stock price over the past year, with a consensus estimate for 2024 earnings at $5.60 per share [16] - Alico (ALCO): The company has a Zacks Rank 3 and expects significant sales growth of 101.8% year-over-year, with a stock price increase of 21% in the past year [19]