Farmer Mac (AGM)

Agricultural finance company Farmer Mac (NYSE:AGM) announced better-than-expected revenue in Q3 CY2025, with sales up 23% year on year to $105.1 million. Its non-GAAP profit of $4.52 per share was 1.2% above analysts’ consensus estimates.

Company Overview

Created by Congress in 1987 to build a bridge between Wall Street and rural America, Farmer Mac (NYSE:AGM) provides a secondary market for agricultural and rural loans, helping lenders increase their liquidity and lending capacity to serve rural America.

Specialty finance companies provide targeted lending or financial services for specific industries or needs. They benefit from expertise in particular sectors, often reduced competition in specialized niches, and tailored underwriting that can yield higher margins. Challenges include concentration risk in specific industries, difficulty achieving scale efficiencies, and potential vulnerability during sector-specific downturns affecting their specialized markets.

Farmer Mac's competitors include other entities that provide financing to agricultural and rural markets, such as the Farm Credit System institutions, commercial banks with agricultural lending divisions, agricultural credit associations, and insurance companies that invest in agricultural mortgages.

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Farmer Mac grew its revenue at an impressive 16.2% compounded annual growth rate. Its growth beat the average financials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Farmer Mac’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 7.2% over the last two years was well below its five-year trend. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Farmer Mac reported robust year-on-year revenue growth of 23%, and its $105.1 million of revenue topped Wall Street estimates by 4%.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For Specialty Finance companies, we look at pre-tax profit rather than the operating margin that defines sectors such as consumer, tech, and industrials.

Interest income and expenses play a big role in financial institutions' profitability, so they should be factored into the definition of profit. Taxes, however, should not as they are largely out of a company's control. This is pre-tax profit by definition.

Over the last four years, Farmer Mac’s pre-tax profit margin has risen by 4.9 percentage points, going from 72.8% to 67.9%. It has also declined by 5.5 percentage points on a two-year basis, showing its expenses have consistently increased at a faster rate than revenue. This usually raises questions unless the company is in high-growth mode and reinvesting its profits into attractive ventures.

Farmer Mac’s pre-tax profit margin came in at 63.5% this quarter. This result was 9.4 percentage points worse than the same quarter last year.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Farmer Mac’s EPS grew at a solid 13.2% compounded annual growth rate over the last five years. However, this performance was lower than its 16.2% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Farmer Mac, its two-year annual EPS growth of 7.5% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q3, Farmer Mac reported adjusted EPS of $4.52, up from $4.10 in the same quarter last year. This print beat analysts’ estimates by 1.2%. Over the next 12 months, Wall Street expects Farmer Mac’s full-year EPS of $17 to grow 8.8%.

Financial institutions manage complex balance sheets spanning various financial activities. Valuations reflect this complexity, emphasizing balance sheet quality and long-term book value compounding across multiple revenue streams.

When analyzing this sector, tangible book value per share (TBVPS) takes precedence over many other metrics. This measure isolates genuine per-share value and provides insight into the institution’s capital position across diverse operations. Traditional metrics like EPS are helpful but face distortion from the complexity of diversified operations, M&A activity, and various accounting rules that can obscure true performance across multiple business lines.

Farmer Mac’s TBVPS grew at an excellent 15.3% annual clip over the last five years. TBVPS growth has recently decelerated a bit to 13.9% annual growth over the last two years (from $83.09 to $107.83 per share).

Return on equity (ROE) reveals the profit generated per dollar of shareholder equity, which represents a key source of bank funding. Banks maintaining elevated ROE levels tend to accelerate wealth creation for shareholders via earnings retention, buybacks, and distributions.

Over the last five years, Farmer Mac has averaged an ROE of 13.9%, healthy for a company operating in a sector where the average shakes out around 10% and those putting up 25%+ are greatly admired. This is a bright spot for Farmer Mac.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

Farmer Mac currently has $31.29 billion of debt and $1.69 billion of shareholder's equity on its balance sheet, and over the past four quarters, has averaged a debt-to-equity ratio of 19.4×. We think this is dangerous - for a financials business, anything above 3.5× raises red flags.

We enjoyed seeing Farmer Mac beat analysts’ revenue and EPS expectations this quarter. Overall, this print had some key positives. The stock traded up 4.6% to $165 immediately after reporting.

Updated: December 4, 2025 at 11:39 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Farmer Mac.

Aside from its balance sheet, Farmer Mac is a pretty decent company. First off, its revenue growth was impressive over the last five years. And while its pre-tax profit margin didn’t move over the last five years, its TBVPS growth was impressive over the last five years. On top of that, its solid ROE suggests it has grown profitably in the past.

Farmer Mac’s P/E ratio based on the next 12 months is 9.5x. Certain aspects of its fundamentals are attractive, but we aren’t investing at the moment because its balance sheet makes us uneasy. If you’re interested in buying the stock, wait until its debt falls or its profits increase.

Wall Street analysts have a consensus one-year price target of $226.67 on the company (compared to the current share price of $175.87).