Several months ago, in my first article on Titan Machinery (NASDAQ:TITN), I posited that the stock was trading at a discount to industry peers after a year-long decline in the share price. Yet frequently, stocks trade at a discount to fair value for a reason – there’s an upside potential the market does like about them. Since then, the stock has continued to decline, shedding 35% in the past three months, while top-and-bottom-line misses in recent quarterly earnings have continued the negative investor sentiment.
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The company has some issues that need to be worked out, such as its bloated inventory. Yet, if management can get their arms around the problems challenging earnings, the stock could see a significant upside from its current deep value. In the words of the old stock market adage – “if you liked it at $20, you love it at $15.” The stock presents a contrarian value play for patient investors willing to play the long game.
Titan Working to Manage Inventories Down
Titan owns and operates agricultural and construction equipment stores in the United States, Europe, and Australia. The company has faced a challenging market environment, with lower net farm income and higher interest rates affecting farmers’ equipment purchasing decisions. This has decreased demand and increased the supply of inventory in numerous product categories, negatively affecting recent results.
On the quarterly earnings call, the CEO stressed that the company is adopting aggressive strategies to manage inventories down to healthier levels, responding to softer industry demand. The company’s long-term goal is to maintain inventory levels corresponding to market demands, maintain good inventory turns in the 2.2 to 3.2 times range, and reduce floorplan interest expense, meaning a reduction of the company’s short-term loans for exhibiting its machinery. Achieving inventory target levels is expected to continue into Fiscal year 2026 and is the company’s highest priority.
Over the past few years, Titan has made significant strategic moves, acquiring seven businesses and adding approximately $670 million in annualized revenue. Despite the complexity and increased operating expenses associated with integrating these acquisitions, if it can successfully increase operating leverage, it can potentially pave the way for more substantial financial outcomes in the future, catalyzing the share price higher.
Titan’s Recent Financial Results and Outlook
For the first quarter of 2025, Titan Machinery reported disappointing results. While revenue of $628.70 million was up 10.4% from $569.6 million in the same quarter last year, it fell short of analysts’ expectations of $661.73 million. The company saw growth in various sectors, with equipment revenue reaching $468.1 million, parts revenue at $108.2 million, and service revenue at $45.1 million. Revenue from rentals and other sections has suffered a slight decrease compared to last year, at $7.3 million.
The company’s gross profit margin for the quarter was 19.4% compared to 20.8% from the previous year. This decrease is primarily due to reduced equipment margins, higher inventory levels, and weakened demand. The net income for the quarter was $9.4 million, a drop from last year’s first-quarter net income of $27.0 million. Earnings per share of $0.41 came in significantly below the consensus estimate of $0.61.
At the quarter’s end, cash was $35.7 million, while inventory increased to $1.4 billion. This increase reflected a rise in new and used equipment inventories, partially offset by decreased parts inventory. Floorplan payables stood at $1.0 billion, compared to $893.8 million outstanding floorplan payables as of January 31, 2024.
Management issued revised guidance for fiscal 2025, reflecting downward changes in projected revenues and additional equipment margin compression of about 80 basis points. This resulted in the diluted EPS outlook being lowered from $3.00 – $3.50 to $2.25 – $2.75, well below analysts’ expectations of $3.18.
What Is the Price Target for TITN Stock?
Analysts following the company have been cautiously optimistic about the stock. Based on the ratings and price targets recently assigned by five analysts, Titan Machinery is rated a Moderate Buy. The average price target on TITN stock is $25.20, representing a potential upside of 65.46% from current levels.
Since hitting a high of $47 in March of 2023, the stock has been on a persistent decline, losing over 65%. It trades at the bottom of its 52-week price range of $15.65 – $34.99 and demonstrates ongoing negative price momentum, trading below its 20-day (16.99) and 50-day (19.32) moving averages. However, a Relative Strength Index value of 22.25 suggests it is currently oversold, while a P/E ratio of 3.67x compared to the Industrial Distribution industry average of 22.92x has the shares trading at a significant discount to industry peers.
Bottom Line on TITN
The market remains concerned about Titan Machinery’s ongoing decline in stock price and the top-and-bottom-line misses from the recent quarterly earnings report. Despite the company’s issues, if management can resolve challenges like inventory and gross margin compression, it could substantially increase the stock price. Value investing is hard because it requires investors to be willing to zig when most investors zag, but with the company currently trading at a significant discount, it presents an opportunity for contrarian value investors to exercise their discipline.
