This S&P/ASX 200 crash victim may have just caught a lucky break

The Elders Ltd (ASX: ELD) share price is fighting back from its big crash after a broker said the stock has been oversold even as it lowered its price target on the stock.

The ELD share price surged 4.7% to $7.38 in after lunch trade – making the stock the third best performer on the S&P/ASX 200 (ASX: XJO) index after the Appen Ltd (ASX: APX) share price and G8 Education Ltd (ASX: GEM) share price which are up 16% and 8%, respectively.

The turn in sentiment comes as Bell Potter upgraded the stock to “hold” from “sell” after the rural services group took a more than 20% beating in the aftermath of its full year result.

Elders share price initially rallied hard on its FY18 profit announcement on Monday which showed a 9% jump in underlying net profit to $63.7 million but that soon gave way as investors rushed for the exits.

Bell Potter pointed to the softer than expected operating cash flow, a higher net debt balance and expectations for a flattish first half FY19 result for the sudden downward reversal in Elders’ share price.

These cracks looked worse than they should in light of its rival’s Ruralco Holdings Ltd (ASX: RHL) results but Elders is now trading around the same multiples as Ruralco following the former’s share price underperformance.

Bell Potter had earlier slapped a “sell” on Elders as it was trading at a premium to its domestic and international peers in the agriculture input markets but couldn’t continue to justify the bearish call on the stock at current levels.

“We continue to see sector wide risk around summer cropping input demand and livestock activity levels in 1H19e (following an elevated cull in 2H18), however, these risks are not isolated to ELD and are reflected in our current projections for the base business ex-acquisitions,” said Bell Potter.

“Beyond 1H19e the prospect of a return to normal seasonal conditions in 2H19e, a full years benefit of the Titan acquisition and the potential to execute on further acquisition targets should see a resumption of earnings growth after what is likely to prove a period of consolidation in 2H18-1H19e.”

However, the broker has cut its price target by 10 cents to $7.35 a share to reflect the impact of a higher market gearing assumption and modestly higher issued capital.

Elders isn’t a favourite of mine and I believe other agriculture exposed stocks like Nufarm Limited (ASX: NUF) make a more compelling opportunity after its big de-rating on the back of its recent profit downgrade due to the weather.

The NUF share price has more upside as the stock is down 36% over the past six months compared to the 12% dip in Elders’ share price.

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Motley Fool contributor Brendon Lau owns shares of Nufarm Limited. The Motley Fool Australia owns shares of Appen Ltd. The Motley Fool Australia has recommended Elders Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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