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Wheat ears stand before harvesting near a Massey Ferguson tractor on a farm in Great Wilbraham near Cambridge, U.K., on Saturday, Aug. 18, 2012.Simon Dawson/Bloomberg

The record grain crop on North American farms has prompted Cantor Fitzgerald to raise share price targets and valuations for a list of companies that make equipment for the booming agricultural sector.

Grain bin maker Ag Growth International Inc., tractor dealership Cervus Equipment Corp. and equipment dealer Finning International Inc. are among the companies given higher targets after good growing conditions in 2013 helped farmers harvest double-digit increases in canola, corn, wheat and other commodities.

Cantor Fitzgerald published an agricultural and industrial equipment sector update on Wednesday, noting sector valuation multiples have risen since it began coverage in October. "The peer group average [enterprise value to earnings before interest, taxes, depreciation and amortization] has increased to 9.1 times from 8.6 times. U.S. peers trade higher at an average of 10.2 times while Canadian peers trade lower at 7.7 times," said analyst Peter Prattas, who is raising his valuation targets for the group by a similar amount (by 0.5 times).

"We continue to believe our sub-sector of covered companies is under followed and offers excellent upside potential. Generally, it can be characterized as having greater long-term growth potential and lower near-term sales volatility versus large-cap original equipment manufacturers while valuations are more compelling," Mr. Prattas said.

Mr. Prattas' top picks are:

Cervus Equipment

Equipment deal Cervus posted same-store sales in the first nine months of 2013 of 17 per cent, as optimistic farmers who enjoyed strong 2012 incomes bought new tractors and combines.

Cervus, which owns 29 John Deere farm-focused dealerships in Western Canada and Australia as well as 19 industrial equipment dealers whose brands include Bobcat and Nissan, is a top pick of Mr. Prattas. He expects the Calgary-based company to raise its dividend as the share price rises amid "consistent execution" in various markets and product lines.

Cervus's share price target was raised to $26 (Canadian) from $24. The average of analysts surveyed by Bloomberg is $24.60. Mr. Prattas maintained a "buy" rating.

Ag Growth

Western Canadian farmers harvested a 2013 grain crop that was 33-per-cent bigger than the previous year and needed somewhere dry to store it. So they bought more grain storage bins. This helped Ag Growth put a drought-stricken 2012 behind it and post strong third-quarter results. "The next several quarters should continue to be very strong," said Mr. Prattas, pointing to low inventories, a backlog of grain in storage and commodity prices that have fallen. Shares in Rosenort, Man., based Ag Growth have risen by 28 per cent in the past 12 months.

Ag Growth's share price target was raised to $48 (Canadian) from $45 and the "buy" rating is unchanged. The average analyst price estimate is $46.17.

Finning International

Edmonton-based heavy equipment dealer Finning is another top pick of Cantor Fitzgerald. The company, which sells Caterpillar equipment, caters to a range of industries, including mining, agriculture and construction. The mining sector has been weak, but a small drop in sales is expected to be offset by a rise in high-margin service revenue, said Mr. Prattas, who expects record earnings and a higher stock price from Finning.

Finning's enterprise value to EBITDA multiple of 8.5 times is below the peer group but in line with those of Toromont and Wajax.

Finning's share price target was raised to $31.50 (Canadian) from $29. The "buy" rating is unchanged. The Bloomberg price estimate average is $28.91.

Mr. Prattas also made rating and price target revisions to several other equipment makers:

Ritchie Bros. Auctioneers was downgraded to "sell" from "hold" and the share price target was unchanged at $21 (U.S.). The stock's recent rise makes the valuation unattractive, Mr. Prattas said.

Rocky Mountain Dealerships was upgraded to "buy" from "hold" and the share price target lifted to $14.25 (Canadian) from $12.50. After reducing its used inventory, the agricultural equipment dealer's outlook is brighter, Mr. Prattas said.

Strongco Corp.'s share price was raised to $7.50 (Canadian) from $5.50 and its "buy" rating was unchanged. New dealerships in Alberta and Quebec will help the company grow this year, Mr. Prattas said.

Toromont Industries' share price target was raised to $27.75 (Canadian) from $26 and the "hold" rating unchanged. The Caterpillar dealer is due for record earnings but the share price already reflects this, Mr. Prattas said.

Titan Machinery Inc. was downgraded to "sell" from "hold" but the share price target was raised to $17 (U.S.) from $15. The U.S. equipment dealer missed out on the rush of new orders in 2013, Mr. Prattas said.

Wajax Corp.'s "hold" rating was reiterated and the share price target was raised to $38 (Canadian) from $35. The equipment distributor was hit by the slowdown in mining and gas last year, Mr. Prattas said.

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