To The Moon

It was a mixed week in the stock market as investors assessed earnings and anxiously await this week’s Fed decision. The best-performing concepts are tobacco, agricultural & farm machinery and integrated telecommunication.

Considering the different perceptions of the stock, this time TigerPicks choose $John Deere(DE)$ to have a fundamental highlight to help users understand it better.

$John Deere(DE)$

DE is a manufacturer and distributor of farm, turf, and construction equipment that operates in 4 segments. It owns and operates 22 facilities in North America, leases 2 more, and operates 47 internationally.

Its Production & Precision Agriculture segment is its largest segment, representing over 40% of sales in 2022. With the segment it sells equipment to large-scale farmers. In the Small Agriculture & Turf segment, meanwhile, it sells equipment to turf and utility customers, as well as high-value crop producers and dairy farmers.

For its Construction & Forestry segment, the company sells equipment to the construction, roadbuilding, and forest industries. It also has finance segment where it will lease equipment and finance sales through its network of independent dealers.

Earnings Beats, But Inventory Concerns

DE posted strong fiscal Q2 results last month, seeing sales soar 30% to $17.4 billion, and easily surpassing the $14.9 billion analyst consensus. Adjusted net income, meanwhile, climbed 36% to $2.9 billion, or $9.65 per share. That also easily topped the analyst consensus for adjusted EPS of $8.64.

DE also forecast a robust outlook for 2023, will all of its segments seeing sales growth. Its Production & Precision Agriculture segment is expected to see about a 20% increase in sales, helped by a 15% increase in prices. Small Ag and Turf, meanwhile, is projected to see sales rise 5%, helped by a 9% price boost. Construction & Forestry is forecast to see its sales climb 15%, helped by a 10% price hike. The company also boosted its full-year earnings outlook to a range of $9.25-9.5 billion, up from a prior outlook of $8.75-$9.25 billion.

DE 2023 Forecast

Earnings Release

Normally, such results would lead to a jump in the stock price, but that was not the case, with DE shares rising in pre-market trading only to finish the day down -2.7%. Some of the concern appears to be around inventory, which was mentioned over 40 times on its earnings call. Overall inventory rose to $9.7 billion, up from $9 billion a year ago. That’s not a big jump given its 30% increase in sales and the rising costs of equipment.

However, there were a lot of questions on the earnings call about a buildup in large Ag inventory in the field. The company credited this to a return to normal seasonality, as well as some pull forward. However, the company also noted a couple areas where it was managing production, including with compact utility tractors in North America and small tractors in Brazil. It also said that channel inventory is up a little bit faster than expected, but noted that some of the field inventory reported is still pending delivery.

Technology Within Agriculture

Deere is making great strides to be a game changer within their respective sector. After all, there is no additional land being made these days, so the importance of efficiency is key within the farming and agriculture sector.

Deere introduced its fully autonomous self-driving tractor at the 2022 CES, which was a huge breakthrough within the farming sector. This add on, although pricey for farmers, over time it can help solve the lack of labor as well as help bring down wages expense.

Deere is aiming to deliver a fully autonomous, battery-powered electric ag tractor to the market by 2026.

Deere

Plowing Up Dividend Growth

Deere has long been known as a solid company that pays a safe and growing dividend. Over the past 10 years, the dividend has grown from $2.04 in 2013 to $5.00 per share in 2023. This is growth of 145%.

Seeking Alpha

Deere currently pays an annual dividend of $5 per share which equates to a dividend yield of 1.2%. The payout ratio is very low at 15% and the company has a five-year dividend growth rate of 14%.

Seeking Alpha

Valuation

DE currently trades around 12.9x the FY2024 (ending October) consensus EBITDA of $13.52 billion and 12.7x the FY2025 consensus of $13.77 billion.

It trades at a forward PE of 12.6x the FY24 consensus of $32.17.

Revenue growth is expected to be around 5% this fiscal year, and down 1% next year.

DE trades at one of the higher multiples in the machinery space, although a bit below its recent history, where it has often had a trailing multiple above 15x.

DE Valuation Vs Peers

DE Valuation Vs Peers (FinBox)

DE Historical Valuation

DE Historical Valuation (FinBox)

Stock Price Forecast:

Here are the target price forecast for the future 12 months from analysts on CNNMoney.com.

The 22 analysts offering 12-month price forecasts for Deere & Co have a median target of 455.50, with a high estimate of 560.00 and a low estimate of 367.00. The median estimate represents a +4.22% increase from the last price of 437.06.

Resource:

https://seekingalpha.com/article/4612670-deere-stock-buy-bullish-momentum-technical-analysis

https://seekingalpha.com/article/4612581-deere-and-company-bringing-self-driving-to-farming

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