On May 26, 2015, shares of Deere & Company DE scaled a new 52-week high of $94.24 following the company’s remarkable second-quarter fiscal 2015 results, reported on May 22. Deere surpassed earnings estimates and provided an upbeat outlook for fiscal 2015 despite poor year-over-year comparisons.
This Moline, IL-based producer of agricultural equipment has a market cap of $31.7 billion. The stock closed yesterday’s session at $93.80, reflecting a year-to-date return of about 6.8% and a one-year return of over 6%, outperforming the S&P 500.
The average volume of shares traded over the last three months was roughly 2640K. The company has outperformed the Zacks Consensus Estimate in each of the four trailing quarters with an average positive surprise of 21.61%.
Key Growth Catalysts
Deere’s earnings per share came in at $2.03 in the second quarter, comfortably beating the Zacks Consensus Estimate of $1.57 but deteriorating 23% from the year-ago quarter. The company raised its 2015 net income guidance to $1.9 billion from the previous expectation of $1.8 billion. Deere expects to thrive in 2015 on the back of its efforts to establish a more resilient business model.
On Mar 31, 2015, Deere divested its crop insurance unit to Farmers Mutual Hail Insurance Company (FMH), as agreed upon in Dec 2014. The sale includes both John Deere Insurance Company and John Deere Risk Protection, Inc., which together made up the business unit. Deere will continue to design, manufacture and offer technology, equipment and services in its precision agriculture offerings.
Deere foresees global sales for Construction & Forestry equipment to advance about 2% in 2015, reflecting further economic recovery and higher housing starts in the U.S. Global forestry sales are expected to hold steady with 2014 levels. The company expects sales growth of turf and utility equipment in the U.S. and Canada to range from flat to up 5%, benefiting from general economic growth.
Deere's ability to meet customer demand for advanced machinery and services through product introduction will drive future growth. Deere's all-new 8000 Series Self-Propelled Forage Harvester represents a complete update with a total of 5,500 new parts and offers innovative features such as field guidance, products, and smart unloading systems. The new machine addresses the needs of dairy customers as well as biogas producers for higher efficiency and productivity. Further, the model 1050K is the largest crawler designed by Deere and is part of its growing production-class equipment portfolio.
Additionally, Deere announced workforce adjustments at several factories in Iowa and Illinois in Jan 2015, as the company continues to align the size of its manufacturing workforce to market demand for products. The actions include indefinite layoffs at five locations as well as an extended inventory adjustment shutdown at another factory. In addition, Deere declared that it has added new jobs at two locations that build construction and forestry equipment. These actions will drive the company’s growth.
Deere is well positioned to benefit from increased global demand for food, shelter and infrastructure. Global trends based on population growth and rising living standards remain intact and are largely unaffected by periodic swings in farming economy. Moreover, Deere will benefit from improvement in the nonresidential construction sector, economic recovery and higher housing starts as well as innovative product introduction.
Deere currently has a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks in the sector include Astec Industries, Inc. ASTE, AO Smith Corp. AOS and Allegion plc Ordinary Shares ALLE. All these stocks carry a Zacks Rank #2 (Buy).
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