Deere & Company (NYSE: DE) is scheduled to report its fiscal second-quarter results on Friday, May 19. We expect Deere stock to trade sideways, with its Q2 earnings expected to miss the street estimates. While the company should continue to benefit from higher demand for agriculture equipment and a robust pricing environment, the overall rise in costs may slightly impact its bottom line growth. Although we expect Deere to report a downbeat Q2, implying little movement in its stock, we find that DE stock is undervalued from a valuation perspective, as discussed below. Our interactive dashboard analysis of Deere’s Earnings Preview has additional details.
(1) Revenues are expected to align with the consensus estimate
- Trefis estimates Deere’s Q2 fiscal 2023 total revenues to be around $14.8 billion, reflecting about 10% y-o-y growth, aligning with the consensus estimate.
- The company saw a strong rebound in demand for agriculture equipment over the last few quarters. This trend likely continued over the latest quarter, as farmers are seeing higher incomes due to tightening supplies of corn and wheat.
- Furthermore, higher-than-average agricultural equipment age and better pricing growth likely contributed to the company’s top-line growth.
- Looking at the last quarter, Deere’s revenue (equipment) rose 34% y-o-y to $11.4 billion, driven by a solid 55% for Production & Precision Agriculture, 14% for Small Agriculture & Turf, and 26% for Construction & Forestry.
- Our dashboard on Deere Revenues provides more details on the company’s segments.
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(2) EPS likely fall below the consensus estimates
- Deere’s Q2 fiscal 2023 earnings per share (EPS) is expected to be $8.45 per Trefis analysis, lower than the consensus estimate of $8.58.
- Deere’s net income of $2.0 billion in Q1 reflected a 117% rise from its $0.9 billion profit in the prior-year quarter, led by The Production & Precision Agriculture segment, which saw its operating margin surge over 1400 bps y-o-y.
- Looking at the full fiscal 2023, we expect EPS to be $30.05, compared to $23.33 in fiscal 2022.
(3) DE stock is fully valued
- We estimate Deere’s Valuation to be $482 per share, about 30% above the current market price of around $360.
- At its current levels, DE stock is trading around 12x its expected forward earnings, compared to the last three-year average of 16x, implying that DE stock is undervalued.
- Furthermore, if the company reports upbeat Q2 results and provides fiscal 2023 guidance better than the street estimates, the P/E multiple will likely be revised upward, resulting in higher levels for DE stock.
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.
|S&P 500 Return||-1%||7%||84%|
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 Month-to-date and year-to-date as of 5/17/2023
 Cumulative total returns since the end of 2016