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Deere (DE) Hits 52-Week High: What's Driving the Rally?

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Shares of Deere & Company (DE - Free Report) scaled a fresh 52-week high of $272 during the Dec 21 trading session, before retracting to close at $267.75. Forecast-topping fourth-quarter fiscal 2020 results, an improved outlook, as well as solid agricultural equipment demand have contributed to this rally.

Share Price Performance

The company’s shares have appreciated 53% over the past year, outperforming the industry’s growth of 49.4%.

Q4 Earnings & Sales Beat: Deere reported earnings of $2.39 per share in fourth-quarter fiscal 2020, handily beating the Zacks Consensus Estimate of $1.44. Net sales of equipment operations (comprising Agriculture and Turf, Construction and Forestry) of $8.66 billion also surpassed the Zacks Consensus Estimate of $7.30 billion.

The company has a trailing four-quarter average earnings surprise of 52.5%.

Upbeat Fiscal 2021 View

Net income for fiscal 2021 is projected between $3.6 billion and $4 billion compared with the prior projection of $2.7 billion to $3.1 billion. The company expects to benefit from the stabilization in the construction and forestry markets in fiscal 2021. Its construction and forestry equipment sales for the fiscal year will likely be up 5-10%, year on year. The outlook reflects recovery from the pandemic-induced demand disruption for construction equipment, solid demand in compact construction on pick-up in residential building activity, as well as anticipated growth in the roadbuilding sector. The global forestry industry sales are forecast to be flat to up 5% in fiscal 2021 on recovery in lumber demand, particularly in North America.

Further, the company anticipates Agriculture and Turf equipment sales to increase 10-15% in fiscal 2021. Industry sales of agricultural equipment in the United States and Canada are expected to be up 5-10%, while turf and utility equipment sales will likely be flat to up 5% for the fiscal year. Industry sales in Europe are forecast to be flat to up 5% for fiscal 2021. Industry sales of tractors and combines in South America are projected to be up about 5% on higher commodity prices and favorable exchange rates.

Driving Factors

The U.S. farm sector is showing signs of stabilization on the pick-up in commodity prices and higher U.S. farm income forecasts. Per the U.S. Department of Agriculture's (USDA) latest available projections, net farm income is anticipated to jump 43.1% to $119.6 billion in 2020. In inflation-adjusted terms, the projected net farm income in 2020, if realized, would mark the highest level since 2013 and 32% higher than the 2000-19 average ($90.6 billion). These factors will encourage farmers to resume spending on agricultural equipment, which will drive the company’s performance.

Moreover, Deere will benefit from focus on launching products with advanced technologies and features, which provides it a competitive edge. Customers’ growing reliance on advanced technology to run complex operations smoothly will continue to fuel the company’s revenues. Management anticipates replacement demand for aged fleet to support firm equipment volumes in the near term. Further, Deere’s efforts to expand in precision agriculture will be a game changer.

Solid Estimate Revisions

The company’s earnings estimate for fiscal 2021 is pegged at $12.78 per share and has moved 21.4% north over the past 30 days. Notably, 10 analysts have raised their earnings estimates for fiscal 2021, while none has revised estimates downward during the same time frame.

Zacks Rank & Other Stocks to Consider

Deere currently sports a Zacks Rank #1 (Strong Buy).

Some other top-ranked stocks in the Industrial Products sector include AGCO Corporation (AGCO - Free Report) , Avery Dennison Corporation (AVY - Free Report) , and Ball Corporation (BLL - Free Report) . While AGCO flaunts a Zacks Rank #1, Avery Dennison and Ball Corp carry a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

AGCO has an expected earnings growth rate of 15.5% for 2020. The stock has appreciated 32.8% in one year’s time.

Avery Dennison has an estimated earnings growth rate of 5% for the ongoing year. Shares of the company have gained 14.4% in the past year.

Ball Corp has a projected earnings growth rate of 16.2% for the current year. Over the past year, the company’s shares have gained 42.1%.

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