Bull of the Day: Deere (DE)
Deere & Company (DE) sees a light at the end of the tunnel as agriculture demand finally picks up. This Zacks Rank #1 (Strong Buy) is expected to see double digit sales growth in Fiscal 2021.
Deere & Company makes equipment, technology and services for customers in the agriculture and construction industries worldwide.
Big Beat in the Fourth Quarter of Fiscal 2020
On Nov 25, Deere reported its fourth quarter fiscal 2020 results and beat the Zacks Consensus by $0.95. Earnings were $2.39 versus the consensus of $1.44 for a 65.9% beat.
It was the fifth consecutive beat by the company.
Sales declined 2% to $9.7 billion but the agriculture segment showed improvement in demand.
Agriculture & Turf sales jumped 8% to $6.2 billion while Construction and Forestry sales fell 16% year-over-year to $2.5 billion.
“Higher crop prices and improved fundamentals are leading to renewed optimism in the agricultural sector and improving demand for farm
equipment,” said John C. May, CEO.
Deere is Bullish About Fiscal 2021
Deere gave bullish guidance about both of its largest business segments for fiscal 2021.
For the year, it expects its Agriculture & Turf sales to increase between 10 to 15 percent as industry sales of agricultural equipment in both the US and Canada are forecast to rise between 5 and 10 percent.
But Construction & Forestry is also expected to see a recovery in sales of between 5 to 10 percent.
Deere expects this due to the pandemic recovery in construction equipment, expected growth in the road building sector and continued strength in compact construction due to residential building activity, which remains hot.
Analysts Raise Estimates
The analysts loved what they heard as they dove in to raise estimates for fiscal 2021 and 2022.
10 analysts raised estimates in the last 30 days which pushed the Zacks Consensus up to $12.64 from $10.34. That's earnings growth of 45% as Deere only made $8.69 in Fiscal 2020.
7 analysts also raised for Fiscal 2022 over the last month, sending the Zacks Consensus up to $15.27 from $12.29. That's another 21% earnings growth.
Shares Soar on the Bullish Outlook
Deere has become a Wall Street darling again.
Shares have soared 46% year-to-date and are at 5-year highs.
It's so hot it's outperforming the technology-heavy Invesco QQQ ETF (QQQ) over those 5-years.
Deere is trading at 20.5x forward earnings. That's not at nose bleed levels but it's not cheap either.
Competitor AGCO Corp. (AGCO) has also rallied this year, with shares up 20% year-to-date. But it's a little cheaper, with a forward P/E of 17.9.
For investors looking for a way to play the rebound in the agriculture sector, plus the possibility of a big infrastructure program in 2021, Deere is one to keep on the short list.
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