How Will Deere Stock Trend Following Q4 Earnings?

Deere & Company (NYSE:DE) is scheduled to report its fiscal fourth-quarter results on Wednesday, November 24. We expect Deere to likely post revenues below, but earnings above, the consensus estimates. While a gradual opening up of the economies with a rise in vaccination rates has resulted in a sharp rebound in overall equipment demand over the recent quarters, a trend likely continued in Q3 as well, the company’s overall performance may be weighed down by higher raw material costs and supply chain headwinds. That said, our forecast indicates that Deere’s valuation is $434 per share, which is around 22% above the current market price of $357. Our interactive dashboard analysis on Deere’s Pre-Earnings has additional details.

Note that a month long strike by workers at Deere has come to an end just yesterday, with Deere agreeing to an increase in base production pay, bonuses, and improvements in pension funding for the workers. ^[1] The company may resort to an increased production overseas with rising wages in the U.S. to cater to a surge in demand for its equipment.

(1) Revenues expected to be below the consensus estimate

Trefis estimates Deere’s Q4 fiscal 2021 total revenues to be around $10.4 billion, 2% below the consensus estimate of $10.6 billion. The company saw a strong rebound in the demand for construction as well as agriculture equipment over the last few  quarters. In Q3 fiscal 2021, revenue rose a solid 32% to $10.4 billion, as the company continued to see an increase in spending on agricultural equipment as well as a rebound in construction equipment demand. In fact, construction and forestry segment sales were up a solid 38% y-o-y, while small agriculture & turf sales were up 32%, and production & precision agriculture sales were up 29%. Our dashboard on Deere Revenues provides more details on segment-wise revenue breakup.

2) EPS likely to be above the consensus estimates

Deere’s Q4 fiscal 2021 earnings per share (EPS) is expected to be $3.98 per Trefis analysis, slightly above the consensus estimate of $3.96. Deere’s net income of $1.7 billion in Q3, reflected a large 2x growth from its $811 million profit in the prior year quarter, led by higher sales and a decline in operating expenses. While Deere saw a higher price realization over the recent quarters, aiding the overall margins, Q4 may see some pressure on margins, primarily due to inflationary headwinds. Looking at the full fiscal 2022, we expect EPS to more than double to $18.86, aided by both revenue growth as well as margin expansion.

(3) Stock price estimate 22% above the current market price

Going by our Deere Valuation, with an EPS estimate of around $18.86 and P/E multiple of 23x in 2021 (vs. 26x in 2020), this translates into a price of $434, which is 22% above the current market price of $357. 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

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1. Deere Workers Approve New Contract, Ending Strike, Bob Tita, The Wall Street Journal, Nov 17, 2021 [↩]