AgJunction is a buy, says PI analyst Sangha

AgJunction’s (AgJunction Stock Quote, Chart, News: TSX:AJX) new focus on its agriculture business is a recipe for success, says PI analyst Pardeep Sangha.

On November 14th, AgJunction reported its Q3, 2013 results. The company earned (U.S.) $32,000 on revenue of $11.4-million, up 9% from the company’s $10.5-million topline in the third quarter of 2012.

“Our return to profitability is a result of our focused efforts in simplifying and streamlining operations,” said CEO Rick Heiniger. “At the same time we have structured the business to scale efficiently as we begin to turn our focus to sustained growth in our business segments.”

Sangha says AgJunction’s Q3 is traditionally the company’s weakest and is “never” profitable. He notes that the company’s top to bottom restructuring, in which it shed all non-agricultural operations and pared its head count significantly, has streamlined the organization to the point where operating expenses declined 18%.

On September 5th of last year, struggling Hemisphere GPS announced that its founder, Rick Heiniger, would replace Steven Koles as CEO. Management said Heiniger would focus on building a “more profitable, focused, streamlined and market-driven innovation company”. The company changed its name to AgJunction earlier this year.

The PI analyst believes that AgJunction’s new pure agriculture focus, combined with an extensive patent portfolio and a low valuation, mean AgJunction is a attractive acquisition target. In a research following the company’s Q3, Sangha maintained his BUY rating on AgJunction, but raised his one-year price target to $1.40, up from his previous target of $1.25.

Shares of AgJunction closed today down .9% to $1.11.