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Deere Hits All-Time Low Despite Q2 Beat

Story Highlights

Deere shares hit an all-time low of $307.64 despite a Q2 beat. The company is facing margin pressures owing to supply chain issues and the ongoing war. However, it has raised its full year net profit guidance on the heels of robust demand for its products.

Shares of Deere & Co. (NYSE: DE) hit a new all-time low of $307.64 despite exceeding second quarter expectations. The company even raised its full year fiscal 2022 profit estimates on the heels of a strong demand for its equipment and expects to report a record high fourth quarter revenue. Deere shares ended the day down 14.1% at $313.31 on May 20.

Deere is an American manufacturer and distributor of equipment used in agriculture, construction, forestry, and turf care. Amid an uncertain economic environment, the company is facing stiff supply chain issues, higher production and research and development costs, as well as the ill effects of the Russia-Ukraine war.

Q2 Results in Detail

Deere reported diluted earnings of $6.81 per share, 12 cents higher than the Street’s estimate of $6.69 per share. In the comparative period last year, Deere posted diluted earnings of $5.68 per share.

Furthermore, net sales and revenue jumped 11% year-over-year to $13.37 billion and also beat the consensus estimates by $210 million.

Deere’s Production and Precision Agriculture sales rose 13% year-over-year to $5.12 billion, backed by price realizations and higher shipment volumes. However, the operating margin declined to 20.7% from 22.2% posted in Q2FY21.

Similarly, Deere’s Small Agriculture and Turf sales grew 5% year-over-year to $3.57 billion. However, operating margins compressed to 14.6% from 19.1% reported for the same period last year.

Notably, the company’s Construction and Forestry sales increased 9% year-over-year to $3.35 billion and its operating margins increased to 24.3% from 15.9%.

Fiscal 2022 Outlook

Deere forecasts net income for FY22 to fall in the range of $7 billion to $7.4 billion.

For FY22, Production and Precision Agriculture sales are projected to grow by 25% to 30%, Small Agriculture and Turf sales are expected to grow by roughly 15%, and Construction and Forestry sales are projected to grow by 10% to 15%.

Commenting on the outlook, John C. May, Chairman and CEO of Deere, said, “Looking ahead, we believe demand for farm equipment will continue benefiting from positive fundamentals in spite of availability concerns and inflationary pressures affecting our customers’ input costs.”

“The company’s smart industrial strategy and recently announced Leap Ambitions are focused on helping customers manage higher costs and increasingly scarce inputs, while improving their yields, through the use of our integrated technologies,” May added.

Deere Stock Prediction

Responding to Deere’s quarterly performance, Morgan Stanley analyst Courtney Yakavonis reiterated a Buy rating on DE stock with a price target of $485, which implies 54.8% upside potential to current levels.

Although the analyst is concerned about the margin compressions, she believes these are more quarter-specific and may cool off going ahead. Moreover, since net income guidance has increased, Yakavonis believes the margins may put pressure on meeting it.

The other analysts on the Street have a cautiously optimistic view on DE stock with a Moderate Buy consensus rating based on six Buys and four Holds. The average Deere price forecast of $444 implies 41.7% upside potential to current levels. Meanwhile, its stock has lost 10.3% year-to-date.

Stock Investors

TipRanks’ Stock Investors tool shows that investor sentiment is currently Neutral on Deere & Co., with 0.7% of portfolios tracked by TipRanks increasing their exposure to DE stock over the last 7 days.

Ending Thoughts

While Deere has been a consistent outperformer in quarterly results, the current macroeconomic environment continues to put pressure on its margins. On the contrary, the current situation has also boosted demand for its products, which will bode well for the company.

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