What To Expect From Deere Stock In Q4?

Deere & Company stock (NYSE: DE) is scheduled to report its fiscal fourth-quarter results on Wednesday, November 25. We expect Deere to likely beat the revenue expectations but earnings could be lower compared to the consensus estimates. Revenue growth is likely to be driven by improved demand for Agriculture as well as Construction equipment.

Our forecast indicates that Deere’s valuation is around $216 a share, which is 17% lower than the current market price of around $259. Look at our interactive dashboard analysis on Deere & Company Pre-Earnings: What To Expect in Q4? for more details.

(1) Revenues expected to be ahead of consensus estimate

Trefis estimates Deere’s Q4 fiscal 2020 total revenues to be around $8.3 Bil and equipment revenue to be $8.1 Bil, 9% ahead of the consensus estimate of $7.4 Bil. While Construction equipment sales was heavily impacted due to the Covid impact, the improved demand from Agriculture helped offset some of this headwind, leading to a sales decline of 11% year-over-year (y-o-y) in Q3 2020. Deere saw a 28% drop in Construction and forestry sales while the Agriculture and turf sales were down just 5% in Q3. The company is seeing an increased spending on agricultural equipment, primarily small tractors, and this could drive the revenues in Q4. The company in its previous earnings conference call provided an outlook for a 5% to 10% decline in Agriculture and turf sales in 2020, while it expects 25% drop in Construction and forestry segment. Our dashboard on Deere Revenues provides more details on segment-wise revenue breakup.

2) EPS likely to be below the consensus estimates

Deere’s Q4 2020 earnings per share (EPS) is expected to be $1.24 per Trefis analysis, almost 3% below the consensus estimate of $1.28. Deere’s net income of $811 million in Q3, reflected a 10% decline from its $899 million profit in the prior year quarter. However, the earnings improved sequentially from $666 million in Q2 2020, which was also the period of lockdowns due to the spread of Covid-19. Q3 also saw a higher price realization for Deere’s Agriculture and turf business, aiding the overall margins, a trend which could continue in Q4 as well. For the full-year, though, we expect a 26% y-o-y decline in EPS to $7.61.

(3) Stock price estimate lower than the current market price

Going by our Deere & Company Valuation, with a revenue estimate of around $34.1 Bil and P/E multiple of 28x in fiscal 2020, this translates into a price of $216, which is 17% lower than the current market price of around $259.

Although the coronavirus outbreak will have a sizable impact on Deere’s revenues in fiscal 2020 due to lower demand for its equipment, we believe the demand for both agriculture as well as construction equipment will rebound as the spread of the virus subsides.

Note: P/E Multiples are based on Share Price at the end of the year, and reported (or expected) Adjusted Earnings for the full year

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