Innovation in US Irrigation

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Innovation in US Irrigation

Water Scarcity: The Firms Pioneering Efficient Irrigation

Increasingly, this technique is being replaced by pivot, lateral and drip irrigation systems, which reduce weed growth and increase crop yields by providing optimal water levels to the plant's roots. These systems are aided by automated wireless and GPS monitoring systems that release water at times of the day when less water is lost to evaporation.

In 1998, this technology accounted for 39% of all irrigated land in the United States. Today, that figure has swelled to 56%.

Internationally, the need for mechanized irrigation is even greater. More than 90% of global farmland (outside the United States) use furrow irrigation systems. In order to boost crop yields to U.S. levels, global farmers are expected to step up their pace of investment in state-of-the-art sprinkler and drip irrigation systems.

That transition is projected to grow the drip irrigation industry at an annualized rate of 18% through 2019, according to analysts from market research firm Technavio.

I found three companies that should prosper as a result:

Lindsay Corp.
Lindsay offers an array of water-saving technologies and services and currently controls 32% of the global mechanized irrigation market. In an attempt to capture the growing international market, Lindsay is building its international sales team, especially in emerging markets.

Lindsay's piece de resistance is its center pivot, lateral and drip irrigation systems. Irrigation segment revenues have grown at a 15% annual pace to $540 million in 2014 from $156 million in 2005. To be sure, demand for such systems is dependent on farm belt spending. As a result, sales growth in this segment has stagnated in the past year, but should grow as farm incomes rebound.

Valmont Industries, Inc.


Lindsay's main competitor in the irrigation sphere, Valmont Industries, is more diversified and holds a strong position in the industry with around 40% of global market share. About a quarter of Valmont's $3.1 billion in net sales come from its center pivot, linear move and corner irrigation equipment and tracking systems.

The company's domestic irrigation sales dipped in 2014 after falling corn prices decreased net farm incomes. However, Valmont's international irrigation sales remained strong, and the segment as a whole has grown at a compound annual growth rate of more than 10% since 2003.

While Lindsay Corporation seems to be the overall better pure play for irrigation investing, Valmont's struggling sales have prompted management to enact a cost-cutting program to enable the company to generate more earnings in the near-term. This has been reflected in Valmont's decreased share price. Since Valmont's stock is trading at lower multiples (it trades at 16 times trailing earnings compared to Lindsay's 21 times), it may be a more attractive investment at the present time for investors looking for a discounted stock with plenty of room to grow.

Source: Nasdaq

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