Initiation of Research Coverage: Titan Machinery, Inc.

Wednesday, January 16, 2013

William Blair & Company initiated research coverage of Titan Machinery Inc. (TITN $28.20), a dealer and renter group of agriculture and construction equipment, with an Outperform rating and Aggressive Growth company profile.

Analyst Lawrence De Maria assigned a $33.00 12-month price target to the company, which he estimated would generate earnings per share of $2.15 for the fiscal year ending January 2013 and $2.50 for the fiscal year ending January 2014.

“Titan Machinery, in our view, represents an attractive investment vehicle to capitalize on global secular trends,” De Maria said. “These include a growing population, rising per capita income, increasing consumption of protein and grain, consolidating farms, expanding use of higher-horsepower farm machinery leading to increased mechanization, and emerging market growth. As CNH’s largest dealer, Titan Machinery has created a platform for consolidating a fragmented dealership base. In turn, management believes acquisitions can drive 10% to 15% of sales growth, in addition to long-term same-store sales growth of 5% to 10%. Titan Machinery’s dealerships constitute less than 5% of CNH’s total dealer network, so there should be an abundance of acquisition opportunities. By integrating acquired dealerships and leveraging shared resources, Titan improves store efficiency and margins.”

De Maria continued, “While susceptible to cyclical gyrations in its agriculture and construction end-markets, Titan Machinery is more insulated than OEMs during downturns, since roughly 50% of its profitability comes from the higher-margin, stable, parts-and-service revenue stream. In contrast, farm equipment OEMs generate only about 15% of revenue from aftermarket sales, so we believe an investment in Titan Machinery is a more prudent way to play the farm equipment space. In sum, Titan Machinery has both defensive and offensive investment characteristics.”

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Current Ratings Distribution (as of 12/31/12)

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Market Perform (Hold): 2%
Underperform (Sell): 0%

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