Deere & Company Inc. (NYSE: DE)
On the eve of Thanksgiving Day, Deere & Company, the agriculture and construction equipment company, reported earnings before the market opened on Wednesday November 25th which came in higher than expected. While revenues were down slightly more than expected, bottom line numbers beat expectations on the earnings side. At the close of trading on Tuesday, shares finished at $76.34, and on Wednesday after the earnings volatility settled, shares were up 4.79% at $80 or up $3.66.
On the daily chart attached, it displays price action going back to June of 2015. In late August you will see a gap down in price on a news related issue. Subsequent to that, the stock traded sideways within two trend lines also drawn on the chart. Note however that with the earnings report just released the stock price has gapped up and traded above the upper trendline and held it. This is what technicians deem as Bullish. Technically, the next step will be a gradual move up to the line slightly higher where the green arrow is and a gap that has yet been filled still awaits. Technically, this is our next target for the stock. Long-term investors will look to buy on any pullback from here.
Analyst reaction was more muted than the market. S&P Capital IQ’s Jim Corridore reiterated a Strong Sell rating on the stock:
“We maintain our 12-month target price of $65, 15.1X the indicated FY16 (Oct.) EPS guidance of $4.30, based on DE’s guidance of net income of $1.4 billion and the current share count. This is above DE’s 5-year and 10-year average, reflecting the good job DE is going managing costs. However, we think the downturn in farm income is likely to go on for some time. Trading at 17.7X likely forward EPS we find the shares overvalued. DE fiscal Q4 EPS of $1.08 vs. $1.83 beat our $0.76 estimate and the Capital IQ consensus of $0.74, on lower revenues than we expected.”
BMO Capital Market’s Joel Tiss reiterated a Market Perform rating and $70 price target, and is skeptical of the company’s forecast:
“We are a little unsure of the thinking behind Deere’s FY2016 net income guide of $1.4 billion. In FY2015, Deere’s sales declined 20% and inventories declined ~10%, so the company under-produced retail modestly as industry inventories remain quite elevated. Deere expects 2016to be another challenging year for ag equipment sales in the industry with total demand in North America projected to drop 15-20%, but its own A&T sales to be down 10% (excluding FX), which to us implies it plans to add to inventories.” Barrons
About Deere & Company
Deere & Company, together with its subsidiaries, manufactures and distributes agriculture and turf, and construction and forestry equipment worldwide. The companys Agriculture and Turf segment provides agriculture and turf equipment, and related service parts, including large, medium, and utility tractors; loaders; combines, corn pickers, cotton and sugarcane harvesters, and related front-end equipment and sugarcane loaders; and tillage, seeding, and application equipment, including sprayers, nutrient management, and soil preparation machinery. This segment also provides hay and forage equipment comprising self-propelled forage harvesters and attachments, balers, and mowers; riding lawn equipment and walk-behind mowers, golf course equipment, utility vehicles, and commercial mowing equipment; integrated agricultural management systems technology and solutions; and other outdoor power products. Its Construction and Forestry segment provides backhoe loaders; crawler dozers and loaders; four-wheel-drive loaders; excavators; motor graders; articulated dump trucks; landscape loaders; skid-steer loaders; and log skidders, feller bunchers, log loaders, log forwarders, log harvesters, and related attachments that are used in construction, earthmoving, material handling, and timber harvesting applications. The companys Financial Services segment finances sales and leases of new and used agriculture and turf equipment, and construction and forestry equipment. This segment also provides wholesale financing to dealers of the foregoing equipment; finances retail revolving charge accounts; and offers crop risk-mitigation products and extended equipment warranties. The company markets its products primarily through independent retail dealer networks and retail outlets. Deere & Company was founded in 1837 and is headquartered in Moline, Illinois. YahooFinance