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Deere & CO (DE - Analyst Report) is
seeing estimates for 2014 slide deeper and as a result it
is a Zacks Rank #4 (Sell).
It is the Bear of the Day.
A Few Recent Downgrades
Over the last few weeks, a few brokerages may lowered their
ratings on DE. The most recent was Piper Jaffray, which
lowered their rating from Overweight to Neutral during the
second week of July. That followed an even bigger call from
JP Morgan in late June. The brokerage lowered their rating
from Neutral to Underweight on the stock.
Deere makes agriculture and turf equipment, and construction
and forestry equipment. Its Agriculture and Turf segment
provides agriculture and turf equipment, and related service
parts, including tractors; loaders; combines, corn pickers,
cotton and sugarcane harvesters. Deere was founded in 1837
and is headquartered in Moline, Illinois.
The company has a relatively good history of beating the
number. In each of the last two quarters they were able to
post a positive earnings surprise. The two quarters
preceding those were another story. Two straight misses,
including one with a negative earnings surprise of more than
14% takes the luster off the two recent beats.
Earnings Estimates Stuck In The Mud
Estimates for DE have declined of late. The 2013 estimates
are moving lower, but not by that much. Peaking at $8.59 in
April they have ticked lower to $8.52. But that is not where
the real pessimism is.
The 2014 Zacks Consensus Estimate has moved lower in each
month since it reached a high of $8.93 in February. The
number dipped to $8.67 in May and is now down to $8.53.
The question becomes when will estimates stop falling?
The valuation picture for DE is a little mixed... with a good
PE valuation and a concern over the price to book. At 10x,
the multiple for both trailing and forward PE, DE compares
favorably to the industry average of 14x. The 4x price to
book multiple, however, is much higher than the 2.5x industry
average. Price to sales is in line with the industry
average. When looking at growth rates, investors would likely
be concerned by a -2.5% top line growth rate in 2013 and a
0.2% increase for 2014. Similarly, EPS growth expectations
of 0.2% for 2014 do not compare favorably with the 12%
The price and consensus chart really shows the story of a stock that had been a darling of Wall Street over the last few years but has recently run into trouble. The colored lines represent different years earnings estimates, and the nice 45 degree angle has not only flattened out, it has turned around. If estimates continue to decrease, the stock price will likely follow the estimates lower.
Brian Bolan is a Stock Strategist
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