What’s Next For Deere Stock After A Solid Q4?

DE: Deere logo

Deere stock (NYSE: DE) is up 12% in a month, outperforming the broader S&P500 index, up over 4%. The rise in DE stock can be attributed to the upbeat Q4 fiscal 2022 earnings it reported earlier this week. Its top line and earnings were well above our estimates, driven by better price realization.

Deere’s revenue of $14.4 billion (equipment operations) reflected a stellar 40% y-o-y rise. Sales were up 59% for Production & Precision Agriculture, 26% for Small Agriculture & Turf, and 20% for Construction & Forestry. The sales growth was driven by higher volume/mix and better price realization. Its earnings of $7.44 on a per share basis was up a significant 75% y-o-y, led by over 500 bps rise in operating margin.

Given the strong demand outlook and pricing growth, the company has a robust outlook for 2023. It expects sales to trend higher and net income of between $8.0 and $8.5 billion, compared to the $7.1 billion figure in 2022.  Strong Q4 performance and outlook boded well with the investors, evident from the stock price appreciation.

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We estimate Deere’s Valuation to be around $413 per share, which is about 6% below the current market price of $438. At its current levels, DE stock is trading around 16x its expected forward earnings, aligning with the last three-year average of 16x, implying that DE stock is appropriately valued now.

But What About The Near Term?

Now that DE stock has seen a 12% rise in a month, will it continue its upward trajectory, or is a fall imminent? Going by historical performance, there is a good chance of an increase in DE stock over the next month. DE stock has seen a move of 12% or more 196 times in the last ten years. 138 of those resulted in DE stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 138 out of 196, or a 70% chance of a rise in DE stock over the coming month. See our analysis on Deere Stock Chance of Rise for more details.

Calculation of ‘Event Probability‘ and ‘Chance of Rise‘ using the last ten years’ data

  • After moving 7.7% or more over five days, the stock rose on 56% of the occasions in the next five days.
  • After moving 10.2% or more over ten days, the stock rose in the next ten days on 49% of the occasions
  • After moving 11.7% or more over a twenty-one-day period, the stock rose on 70% of the occasions in the next twenty-one days.

This pattern suggests a higher chance of a rise in DE stock over the next five and twenty-one days.

Deere (DE) Stock Return (Recent) Comparison With Peers And S&P500

  • Five-Day Return: DE highest at 7.7%; ASTE lowest at -20.0%
  • Ten-Day Return: CNHI highest at 12.8%; ASTE lowest at -18.4%
  • Twenty-One Days Return: TEX highest at 30.0%; ASTE lowest at -12.2%

While DE stock is fully valued, 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 at how counter-intuitive the stock valuation is for Corning vs. Amerco.

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 Nov 2022
MTD [1]
YTD [1]
Total [2]
 DE Return 11% 28% 325%
 S&P 500 Return 4% -16% 80%
 Trefis Multi-Strategy Portfolio 4% -19% 221%

[1] Month-to-date and year-to-date as of 11/25/2022
[2] Cumulative total returns since the end of 2016

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