Farmland Partners Inc.

Farmland Partners Inc. (NYSE: FPI) is a North American company that owns and aims to buy high-quality farmland. The firm is a self-managed real estate firm that owns and leases farms and storage facilities around the United States. Over 100 tenants farm the land, which produces over 26 economic crops. Farmland Partners' rent from its tenants is how it makes money.

Key Highlights:

• Balance Sheet Risk: The company’s Debt/Equity ratio at the end of the December 31, 2021, stood at 1.12x significantly higher compared to the industry median Debt/Equity ratio of 0.85x. Moreover, the company has relatively poor risk protection metric, with Net Debt/EBITDA stood at 14.5x at the end of December 2021 compared to the industry median of 6.36. Given the small-cap market capitalization of the company, investors are exposed to a higher balance sheet risk.
• Expansion in Gross margin: The company’s gross margin reported in FY21 stood at 82.88% an increase of ~400bps on a YoY basis. This was mainly driven by decline in Cost of Sales as % to Total sales to 17.12% compared to 21.18% reported a year ago.
• Decline in Operating Income as % of Sales: In the financial period ended December 31, 2021, FPI’s reported operating income as % of sales lowered to 32.50% from 44.05% reported a year before period. This was mainly on account of the increased SG&A expenses to 35.48% of total sales compared to 19.01% of the sales reported in FY20.
• Double-Top Price Pattern on Weekly Price Chart: On weekly price chart, FPI shares are forming a double top kind of price pattern, and started falling from the previous top, implies that FPI might correct from the current trading level, as momentum indicator 14-period RSI is also reported reversal.

Technical Price Chart (as on April 13, 2022, 12:14 PM PDT). Source: REFINITIV, Analysis by Kalkine Group

Stock Recommendation

Based on the poor profitability compared to the industry median, high debt position, and bearish technical indicators, we recommend a "Watch" rating on the stock at the current price of USD 13.94 as of April 13, 2022, 09:50 AM ET.

FPI’s Technical Price Chart (as of April 13, 2022, at 12:13 PM PDT). Source: REFINITIV, Analysis by Kalkine Group

Technical Summary

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV. 

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.