Toro's Green Light: A Contrarian Play in Turf Wars and Tariff Storms

The lawn care industry is mowed down by headwinds—slumping residential sales, trade policy chaos, and a consumer pulling up stakes on discretionary spending. But in this browning landscape, Toro Company (TTC) is pushing blades forward. Let me break down why this is a contrarian's dream at a time when the market's been snipping its stock.

The Contrarian's Case: Margins Hold Steady While Others Fade

Toro's first-quarter results show a company thriving where others might wilt. While net sales dipped 1% to $995 million, adjusted EPS rose 2% to $0.65, defying the gloom. The magic? The AMP initiative, a $100 million cost-savings drive, is delivering results. Gross margin dipped slightly to 34.1%, but adjusted operating margins jumped to 9.4%, outpacing last year's 9.2%.

This isn't just about cutting costs—it's about strategic focus. The Professional segment, which fuels 77% of sales, grew 1.6% on soaring demand for golf course equipment and underground construction tools. Meanwhile, the struggling Residential segment—hit by snow product slumps and Pope Products divestitures—accounts for just 22% of revenue. Investors, take note: Toro isn't a residential play anymore. It's a pro-growth machine.

Valuation Discipline: Buying a $10 Billion Business at $8.4 Billion

Here's the contrarian math: At a market cap of $8.4 billion (as of early 2025), Toro trades at 19x forward EPS, well below its five-year average of 22x. Compare that to peers like Deere (DE), which trades at 24x, and you've got a discount for a company with debt-to-equity of 0.74—manageable, not mortgage-threatening.

The WACC of 9.34% vs. ROIC of 16.4% tells the story: Toro's using capital smarter than it costs to borrow. And with $171 million in cash and a $100 million buyback in Q1 alone, management isn't just talking resilience—it's acting.

The Risks? Manageable, Not Mortal

Critics will point to tariff threats—especially China's unpredictable levies—and slowing infrastructure spending. But here's the rebuttal:
- AMP's $64 million in annual savings to date (with $100 million targeted by 2027) creates a buffer.
- Innovation like the Turf Pro autonomous mower and TerraRad irrigation tech is future-proofing demand.
- International sales (21% of revenue) are growing as U.S. peers face protectionist headwinds.

Even if U.S. residential sales stay flat, the professional segment's 6% margin growth and infrastructure tailwinds (think $1 trillion in U.S. road projects) will keep earnings greener than a well-manicured lawn.

The Play: Buy Now, Mow Later

This isn't a “buy the dip” call—it's buy the strategy. At $84 a share, TTC offers a 2% dividend yield and a path to $100 if margins stay robust and the pro segment keeps chugging. The contrarian edge? Most are focused on the Residential slump, not the Professional boom.

Action Items:
- Buy TTC on dips below $80.
- Set a price target of $100 by 2026, assuming 10% EPS growth.
- Watch for AMP's next update (Q3) to confirm $100 million savings.

In a market obsessed with fear, Toro's got the tools to turn worry into yield. This is a shovel-ready investment—no kidding.

Disclosure: The analysis is based on public financial data and does not constitute personalized investment advice. Always consult a financial advisor before making decisions.