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John Deere Q2 Preview: 11th Consecutive EPS Beat in Store?

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Earnings season continues to unwind. The bulk of the action is over, as we’ve received quarterly reports from countless companies over the last several weeks. To say the least, it’s been one for the books – the first quarter of 2021 has been one of the most ruthless markets we’ve seen in recent times.

We’ve witnessed numerous adverse market reactions to many Q1 reports, and we all know by now that supply-chain bottlenecks, rising costs, and a hawkish Fed have been three of the main driving forces. Coming out of an unprecedented pandemic, we have found ourselves in a rather unique economic situation.

Nonetheless, the show must go on – the market waits for nobody. The big-time agriculture machinery giant Deere and Company (DE - Free Report) is on deck to report quarterly results tomorrow before trading begins.

Share Performance & Valuation

John Deere shares have been a stellar place to park cash throughout 2022. Year-to-date, shares have returned a mighty 7%, while the S&P 500 has declined roughly 18%. With all of the valuation slashes we’ve seen in 2022, a company whose shares have remained strong bodes very well for the state of the business.

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Image Source: Zacks Investment Research

When expanding the time frame over the past year, we can see the DE shares have still outpaced the general market quite handily, gaining 4% in value while the S&P 500 has declined roughly 5%. In the market conditions we have witnessed, it is uplifting to see the company’s shares still penciling in a positive return over the last year.

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Image Source: Zacks Investment Research

John Deere’s current forward earnings multiple is sitting nicely at 16.2X, nearly half of its 2020 high of 33.2X, and nicely below the median of 18X over the last five years. Additionally, the value represents a 7% discount relative to the S&P 500’s forward earnings multiple of 17.5X.

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Image Source: Zacks Investment Research

Previous Earnings & Impact On Shares

John Deere has posted stellar EPS results over the last several years. The company has chained together ten straight consecutive EPS beats, and over its previous four quarterly reports, DE has an average EPS surprise in the double-digits of 21%.

The top-line has shown strength again and again as well. Over its last ten quarterly reports, the company has missed sales expectations only once; the one revenue miss came in 2021 Q4, when DE fell short of sales expectations by a marginal 0.6%.

Overall, the quarterly results have been robust for the agriculture machinery giant. Now, how has the market reacted to these results?

Over its last six EPS beats, shares have moved upwards four times following the quarterly reports. One of the two times that shares reacted negatively was in its latest quarterly report; shares moved downwards by 3%. Additionally, shares moved downwards following the 2020 Q4 report, when shares inched down 2%.

Earnings Surprise

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Image Source: Zacks Investment Research

Pairing a positive Earnings ESP value with a Zacks Rank #1 (Strong Buy), Zacks Rank #2 (Buy), or Zacks Rank #3 (Hold) produces a positive EPS surprise nearly 70% of the time – those are some great odds. Now, DE has a positive ESP Score of 0.06% and is currently a Zacks Rank #3 (Hold). This means that the company has a high chance of beating on EPS, and with the overall positive reactions the market has had to its quarterly reports, it seems that shares are in a strong spot heading into the quarterly report.

EPS & Revenue Estimates

Heading into tomorrow, the Consensus Estimate Trend for the quarter has retraced 2.2% to $6.65 per share over the last 60 days, with four analysts lowering their earnings outlook for the quarter. At first glance, the adverse revision action does raise some concern, but the quarterly estimate displays a sizable 17% growth in earnings from the year-ago quarter.  

Additionally, revenue estimates display a considerable expansion in the top line as well. The Zacks Consensus Estimate has DE raking in $13.4 billion in revenue for the quarter, a 23% increase from the year-ago quarter. The graphic below illustrates forecasted annual EPS and Sales numbers.

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Image Source: Zacks Investment Research

Titan International

For investors interested in the Zacks Manufacturing – Farm Equipment industry (where John Deere also operates), a stellar company that has received substantial positive estimate revisions across the board is Titan International .

Over the last 60 days, the Consensus Estimate Trend for Titan International’s upcoming quarterly release has soared 55% up to $0.53 per share; this reflects a massive 140% growth in earnings from the year-ago quarter.

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Image Source: Zacks Investment Research

Additionally, two analysts have upped their current fiscal year outlook on earnings for TWI, sending the Consensus Estimate Trend up 35% up to $1.57 per share and reflecting a sizable 85% growth in earnings year-over-year.

Over its last four quarters, TWI has acquired a rock-solid average EPS surprise of 52% while beating estimates by a sizable 51% in its latest quarter. Titan International carries a highly-coveted Zacks Rank #1 (Strong Buy).

Year-to-date, TWI shares are up a massive 56%, representing an enormous amount of relative strength compared to the general market.

Titan International, Inc. Price, Consensus and EPS Surprise

Titan International, Inc. Price, Consensus and EPS Surprise

Titan International, Inc. price-consensus-eps-surprise-chart | Titan International, Inc. Quote

Bottom Line

A surge in commodity prices is expected to continue fueling agricultural equipment demand, with farmers boosting spending on new agriculture machinery to replace old equipment. Additionally, John Deere is expected to benefit from favorable crop prices, economic growth, and increased infrastructure spending in FY22.

John Deere has been on a hot streak of exceeding EPS estimates, and shares generally act favorably following the quarterly releases. Additionally, DE has a positive ESP score heading into tomorrow, quarterly estimates display sizable year-over-year growth rates, year-to-date share performance has been stellar, and its forward earnings multiple is below its five-year median.

I have an optimistic view heading into the quarterly report for these reasons. Since the current market conditions have caused investors to shrug off robust quarterly reports, it could be worthwhile to heed caution until the market figures out what it wants to do. However, all signs are pointing towards another EPS beat.

Deere & Company Price, Consensus and EPS Surprise

Deere & Company Price, Consensus and EPS Surprise

Deere & Company price-consensus-eps-surprise-chart | Deere & Company Quote


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