Will Deere Stock See Higher Levels After An Upbeat Q4?

HAMPSHIRE, IL – AUGUST 19: A John Deere logo is painted on the side of a piece of farm equipment … [+] offered for sale at the Buck Bros. dealership August 19, 2009 in Hampshire, Illinois. Deere & Co., the world�s largest maker of farm equipment, today posted a decline of approximately 27 percent in third-quarter profit. (Photo by Scott Olson/Getty Images)

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[Updated: Nov 26, 2021] Deere Earnings Update

Deere & Company recently reported its Q4 FY21 earnings, which were better than our estimates. The company reported sales (equipment operations) of around $10.3 billion (up 19% y-o-y), compared to our estimate of $10.4 billion. While construction and forestry equipment revenues were up 14%, agricultural and turf equipment revenue were up over 20%, driven by higher volume as well as better price realization. Our dashboard on Deere Revenues offers more details on the company’s segments.

Looking at the bottom-line, the company reported earnings of $4.12 per share, compared to $2.39 in the prior year quarter. The earnings were comfortably above our forecast of $3.98 per share and the $3.96 per share consensus estimate. Better price realization meant higher operating margins for the company. In fact, operating profit of $1.4 billion in Q4 was up 32% y-o-y.

Following a solid performance in Q4FY21, Deere provided a solid outlook for 2022, with agriculture and turf sales expected to be up around 20%, and construction and forestry sales to be up between 10% and 15%. The company also expects its net income to rise 13% at the mid-point of its guided range.

We have also updated our model following the Q4 release. We have revised the sales forecast (equipment operations) to be around $45.4 billion in fiscal 2022, considering continued uptick in both the segments. As such, we also expect EPS to be higher at $22.53, compared to $18.99 in fiscal 2021. Given these changes to our revenues and earnings forecast, we have revised our Deere Valuation to $447 per share, based on $22.53 expected adjusted EPS and a 20x P/E multiple for fiscal 2022, implying a 28% upside from its current levels of $349, implying that DE stock is currently undervalued and it will likely see higher levels in the near term, in our view.


[Updated: Nov 19, 2021] Deere Q4 Earnings Preview

Deere & Company 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 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

While DE stock looks like can gain more, it is helpful to see how its peers stack up. DE stock comparison with its peers summarizes how Deere compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since 2016.

Returns                                Nov\’21 MTD [1]          YTD [1]            2017-21 [2]    

DE Return                                        8%                          37%                        257%            

S&P 500 Return                              3%                          25%                        110%            

Trefis MS Portfolio Return            -2%                        49%                        304%            

[1] Month-to-date and year-to-date as of 11/26/2021

[2] Cumulative total returns since 2017

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