Should You Buy Deere Stock At $360 Levels?

[Updated: Aug 24, 2021] Deere Stock Update

Deere & Company (NYSE:DE) recently reported its fiscal Q3 2021 results, which were comfortably above our estimates. The company reported revenues of $10.4 billion, compared to our estimate of $9.9 billion and $10.3 billion consensus estimate. Similarly, the EPS of $5.32 was well above the $4.45 per Trefis and $4.57 consensus estimates. The strong performance was led by a continued uptick in demand for both construction and agricultural equipment. Deere saw higher volume as well as better price realization for both the segments in Q3.

Looking forward, the company has warned about rising raw-material costs and increased supply-chain challenges, that may impact its growth in Q4 and into the next fiscal year. As such, despite a solid Q3, DE stock declined over 3% following the earnings release on Aug 20.

We have updated our model following the Q3 release. We now forecast sales to be $39.9 billion for the full-fiscal 2021, up 25% y-o-y, compared to our previous estimate of around $39.7 billion. Looking at the bottom line, we now estimate adjusted EPS to be $18.86, compared to our earlier estimate of $17.60. This can largely be attributed to a strong earnings beat in Q3. Given the changes to our revenues and earnings forecast, we have revised our Deere Valuation at $434 per share, based on $18.86 expected EPS and 23x P/E multiple for fiscal 2021. This reflects a 20% premium to the current market price of $363, implying that DE stock is undervalued currently, in our view.

[Updated: Aug 18, 2021] Deere Fiscal Q3 2021 Earnings Preview 

Deere & Company (NYSE:DE) is scheduled to report its fiscal third-quarter results on Friday, August 20. We expect Deere to likely post revenues and earnings below the consensus estimates. While Deere is expected to benefit from improved demand for agriculture as well as construction equipment, with the gradual opening up of economies, rising raw-material costs may put some pressure on margins. That said, our forecast indicates that Deere’s valuation is around $425 per share, which is more than 12% above the current market price of $376. Look at our interactive dashboard analysis on Deere & Company Pre-Earnings: What To Expect in Q3? for more details.

(1) Revenues expected to be below the consensus estimate

Trefis estimates Deere’s Q3 fiscal 2021 total revenues to be around $9.9 billion, 4% below the consensus estimate of $10.3 billion. The company saw a strong rebound in the demand for construction as well as agriculture equipment over the last couple of quarters. In Q2 fiscal 2021, revenue rose a solid 30% to $12.1 billion, as the company continued to see an increase in spending on agricultural equipment. The company also expects a rebound in inventory levels, which should aid the overall sales growth in Q3. Our dashboard on Deere Revenues provides more details on segment-wise revenue breakup.

2) EPS likely to be below the consensus estimates

Deere’s Q3 fiscal 2021 earnings per share (EPS) is expected to be $4.45 per Trefis analysis, 3% below the consensus estimate of $4.57. Deere’s net income of $1.8 billion in Q2, reflected a large 169% growth from its $666 million profit in the prior year quarter, led by higher sales and a decline in operating expenses. While Q2 saw a higher price realization, aiding the overall margins, Q3 may see some pressure on margins, primarily due to a rise in raw-material costs. Looking at the full year 2021, we expect EPS to more than double to $17.60, aided by both revenue growth as well as margin expansion.

(3) Stock price estimate 13% above the current market price

Going by our Deere & Company Valuation, with an EPS estimate of around $17.60 and P/E multiple of 24x in 2021 (vs. 26x in 2021), this translates into a price of $425, which is 13% above the current market price – $376. Although the coronavirus outbreak has had a sizable impact on Deere’s business in fiscal 2020 due to lower demand for its equipment, the demand for both agriculture as well as construction equipment has seen a strong rebound so far this year, a trend expected to continue in the near term.

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

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams