What’s Next For Deere Stock After An Upbeat Q1?

DE: Deere logo

Deere stock (NYSE: DE) is up 4% in a month, outperforming the broader S&P500 index, down 1%. The rise in DE stock can be attributed to the upbeat Q1 fiscal 2023 results it reported last week. Deere’s revenue of $11.4 billion (equipment operations) reflected a stellar 34% y-o-y rise. Sales were up 55% for Production & Precision Agriculture, 14% for Small Agriculture & Turf, and 26% for Construction & Forestry. The sales growth was driven by higher volume/mix and better price realization. Its earnings of $6.55 on a per share basis were up a significant 114% y-o-y, led by about 900 bps rise in operating margin.

Deere is benefiting from a strong farming equipment demand. Farmers are seeing higher incomes due to tightening supplies of corn and wheat. Farmers have more incentive to increase planting given the high grain prices. [1] Given the strong demand outlook and pricing growth, the company raised its outlook for 2023. It expects sales to trend higher and net income between $8.75 and $9.25 billion, compared to its prior guidance of $8.0 and $8.5 billion, and the $7.1 billion figure, the company reported in 2022.  Strong Q1 performance and outlook boded well with the investors, evident from the stock price appreciation.

We now estimate Deere’s Valuation to be around $482 per share, about 13% above the current market price of $426. This represents a 16x P/E multiple based on its expected EPS of $30.05 in fiscal 2023, aligning with its last four-year average. At its current valuation of $426, DE appears to have more room for growth, as it is trading at a comparatively low multiple of 14x forward earnings compared to its historical average mentioned above.

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While DE stock looks like it can see higher levels, 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.

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  1. High Food Prices, Chinese Demand Boost Prospects of U.S. Agriculture Companies, Patrick Thomas, The Wall Street Journal, Feb 11, 2023 []