Trimble Could See Debt Reduction, Buyback Boost From AGCO Deal Proceeds, Analyst Upgrades Stock

Raymond James analyst Brian Gesuale upgraded Trimble Inc TRMB rating to Outperform from Market Perform at a maintained price target of $65.

The analyst is bullish on the stock following Trimble's joint venture deal with AGCO Corp AGCO to sell 85% interest in its Ag assets and technologies portfolio for $2.0 billion and the contribution of JCA Technologies.

Related: AGCO's Trimble Ag JV Acquisition Is A Value-Creation Moment, Says Analyst

Also, the analyst sees the divestiture multiple of 12.7x as fair, which accounts for the $2 billion gross proceeds divided by 85% of the Ag EBITDA of $185 million.

The analyst notes that the proceed of $1.5 billion curbs debt and enables a buyback capacity of about $700 million. 

Gesuale also writes that the deal will improve the mix of software and recurring content and mitigate the risk of building organic distribution in the Ag business following the dissolution of distribution with CNH.

Apart from the cash proceeds, Trimble can garner future profits of around $1 billion through the 15% JV stake, 7-year supplier deal, and additional synergies, notes the analyst. 

The analyst raised adjusted EPS and revenue estimates to $2.64 (from $2.63) and $3,860 million (from $3,846 million) for FY23 and $2.88 (from $2.87) and $4,103 million (from $4,088 million) for FY24.

Price Action: TRMB shares are up 3.40% at $54.19 on the last check Friday.