Will Deere Stock See Higher Levels Following Its Q2 Results?

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Trefis
DE: Deere & company logo
DE
Deere & company

Deere & Company (NYSE: DE) is scheduled to report its fiscal second-quarter results on Friday, May 20. We expect Deere to post revenues in line, and earnings above the consensus estimate. The company should benefit from a continued uptick in demand for agriculture and construction equipment. Higher commodity prices and a strong demand environment likely aided the pricing growth for Deere. Furthermore, we find Deere stock to be undervalued currently, as discussed below. Our interactive dashboard analysis of Deere’s Earnings Preview has additional details.

(1) Revenues expected to align with the consensus estimate

  • Trefis estimates Deere’s Q2 fiscal 2022 total revenues to be around $13.1 billion, in line with the consensus estimate.
  • The company saw a strong rebound in demand for construction and agriculture equipment over the last few quarters, a trend that likely continued over the latest quarter.
  • Furthermore, rising farm income, more than the average age of agricultural equipment, and rising commodity prices, likely contributed to the company’s top-line growth.
  • Looking at the last quarter, Deere’s revenue rose 6% y-o-y to $8.5 billion, driven by a 7% rise in agricultural and turf-related equipment sales, while construction and forestry equipment sales were up 3%.
  • Our dashboard on Deere Revenues provides more details.
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(2) EPS likely to be above the consensus estimates

  • Deere’s Q2 fiscal 2022 earnings per share (EPS) is expected to be $6.80 per Trefis analysis, above the consensus estimate of $6.71.
  • Deere’s net income of $903 million in Q1 reflected a 26% decline from its $1.2 billion profit in the prior-year quarter. This can primarily be attributed to work disruption at some of Deere’s plants.
  • Looking at the full fiscal 2022, we expect EPS to be $22.90, compared to the $18.99 seen in fiscal 2021.

(3) DE stock has more room for growth

  • We estimate Deere’s Valuation to be $452 per share, reflecting an 18% upside from its current market price of $384.
  • This represents a forward P/EBITDA multiple of 9x based on our Deere’s EBITDA forecast.
  • That said, if the company reports upbeat Q2 results and FY2022 guidance better than the street estimates, it is likely that the P/EBITDA multiple will be revised upward, resulting in even higher levels for DE stock.

While DE stock looks like it has more room for growth, it is helpful to see how Deere’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Deere vs. Williams-Sonoma.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns May 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 DE Return 2% 12% 273%
 S&P 500 Return -1% -14% 83%
 Trefis Multi-Strategy Portfolio -3% -19% 217%

[1] Month-to-date and year-to-date as of 5/18/2022
[2] Cumulative total returns since the end of 2016

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