AgJunction gets price target cut at Paradigm

A pre-announcement for a weaker than expected quarter has Paradigm Capital analyst Daniel Kim lowering his price target on AgJunction (AgJunction Stock Quote, Chart, News: TSX:AJX).

Last Thursday, AgJunction reported preliminary third quarter results in which it said revenue would come it at between $6.5-million to $6.7-million, a figure that will be down from the $7.6-million topline the company reported in last year’s Q3. The company said pro forma unaudited revenue for third quarter of 2015 would have been $10.8-million had Novariant been merged with AgJunction.

“General weakness within the agriculture markets in the first two quarters of 2016 has continued into the third quarter, resulting in lower year-over-year sales volumes,” said CEO Dave Vaughn. “We continue our efforts to align our cost structure with expected volumes to manage through the extended downturn in the agriculture industry, but allow us to grow when the industry rebounds.”

Kim says the preliminary results come in “far below” his expectations. The analyst says that while management has done a commendable job, the macro headwinds are just too much.

“With the ag industry across all sectors and geographies entrenched in a sustained multi-year trough and negative forward data points from all sides, we cannot reasonably stand behind a cyclical rebound slated for 2017,” he says. “AJX has great technology and a solid management team that has right-sized the business for when ag returns, however the timing for a macro recovery remains elusive.”

In a research update to clients today, Kim cut his rating from “Buy” to “Hold” and lowered his one-year price target on AgJunction from $1.00 to $0.55, implying a return of -20 per cent at the time of publication.