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Hawk’s Nest

Titan Machinery (TITN) Call Buyers Optimistic on Spring Planting Season into Earnings

by | May 10, 2021

Titan Machinery (TITN) small-cap with a very coiled weekly chart setting up above its rising 21-week MA and just below new highs. TITN broke out of a big monthly range in February as well and consolidating nicely above that level. Yesterday, we saw 2,000 June $30 calls bought and TITN still has some smaller September and June put sales at the $17.50 strike, although both up around 50%+ from their entries.

The $580.5M company owns a network of agricultural and construction equipment stores in the US. They sell a lot of machinery under the CNH Industrial (CNHI) brand as well as a few others in the space with a focus on residential/commercial maintenance, heavy construction, forestry, energy, and more. They also rent equipment and provides services like maintenance. Shares trade 15.7X earnings, 0.4X sales, and 3.5X FCF with mid-teens growth.

TITN is benefitting in the present from a few big market tailwinds within both the ag and construction space. First, the company has highlighted a major refresh cycle underway for farmers as they upgrade to new machinery with better technology to drive yields. TITN has pushed forward more merchandise like large planters and GPS tech to help drive higher-margin sales. Second, older fleets are becoming prime targets for services revenue as well as generating new customers at a low acquisition cost. Third, higher grain prices like soybeans and corn are pushing more farmers to utilize their land and USDA payments are supporting equipment buys. Fourth, higher housing starts are supporting growth in construction projects. Finally, sentiment overall for farmers is improving. They noted in March:

“We are seeing much improved farmer sentiment due to the progressive strength in commodity prices through our fourth quarter and continuing to date. In addition to the stronger commodity prices, favorable yields in much of our ag footprint, combined with USDA payments, led to improved net farm income for calendar year 2020. Additionally, fall harvest conditions were ideal for most of our farm and ranch customers to get their fields in great shape for the upcoming spring planting season. The sentiment of the European farmer is improving due to improved global commodity prices and the winter crops receiving some much-needed moisture, creating a better outlook as our customers approach the 2021 growing season.”

Analysts have an average target for shares of $24 with a Street High, albeit limited coverage. Short interest is 2.3%. Hedge fund ownership rose 4% in Q4.