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Farm Equipment Demand & Investment in Technology to Aid Deere (DE)
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On Aug 23, we issued an updated research report on Deere & Company (DE - Free Report) . The company will gain from higher agricultural commodity prices that will likely spur agricultural equipment demand in the near term. Improved scenario in the construction sector, as well as focus on investment in precision agriculture will continue to aid growth.
Deere reported third-quarter fiscal 2021 earnings of $5.32 per share, beating the Zacks Consensus Estimate of $4.49. The bottom-line figure also surged 107% from the prior-year quarter. Net sales of equipment operations came in at $10.4 billion, up 32% year over year. Revenues surpassed the consensus mark of $10.2 billion.
Higher Commodity Prices to Drive Growth
Improving farm income on escalating agricultural commodity prices has led farmers to boost investing in new equipment and replace their aging fleets. Grain and oilseed consumption is expected to outstrip supply this year. Deere expects to see strong double-digit growth in production rates for crop care products in fiscal 2022.
While government support is expected to decrease this year, principal crop cash receipts in the United States will likely increase 30% on higher commodity prices. The U.S customer sentiment has gone up over the last few quarters with elevated exports to China. Considering these factors, Deere raised its fiscal net income guidance to $5.7-$5.9 billion from the prior guidance of $5.3 billion to $5.7 billion.
Upbeat Farm Equipment Sales Forecast Bodes Well
For the Agriculture & Turf segment, the company expects industry sales of large agricultural equipment in the United States and Canada to be up roughly 25% for fiscal 2021, and small agricultural and turf equipment to be up 10%. In Europe, the industry is expected to be up around 10-15% as higher commodity prices favored business conditions in the arable segment.
In South America, industry sales of tractors and combines are likely to go up 20%. Higher commodity prices, strong production and a favorable currency environment have boosted farmers’ income leading to improved orders. Despite limited government-sponsored financing programs, private financing is more widely available this year and supporting continued strength in equipment demand. Industry sales in Asia are forecast to be up significantly, driven primarily by a strong recovery in the Indian tractor market.
Net sales for Deere’s Production and Precision Agriculture segment is anticipated to be up between 25% and 30% in fiscal 2021. The segment’s operating margin is expected between 20% and 21%. The Small Agriculture and Turf segment’s net sales is expected to be up 25% and its operating margin is forecast between 17% and 18%.
The company has also been witnessing improvement in the Construction & Forestry segment. North American construction equipment industry sales to be up between 15% and 20%, while sales of compact construction equipment are estimated to be up between 20% and 25%. Forestry equipment sales are expected to be up 15%, as lumber demand remains robust.
Sales for the Construction & Forestry segment are projected to be up 30% and operating margin is likely to be 12% to 13% in fiscal 2021. The company is likely to benefit from growth in non-residential investment and strong order activity from independent rental companies during the fiscal fourth quarter.
Advancement in Farming Technology to Spur Growth
Deere is well poised for growth over the long term, backed by steady investments in new products and geographies. Focus on launching innovative products equipped with advanced technologies and features, and investments in precision agriculture provide it a competitive edge. The company envisions to revolutionize agriculture with technology and make farming automated, easy to use and more precise across the production process. Farmers’ growing reliance on advanced technology to run their complex operations smoothly will continue to fuel Deere’s revenues.
Share Price Performance
Deere’s shares have gained 35.5% so far this year, outperforming the industry’s growth of 27.6%.
A few other top-ranked stocks in the Industrial Products sector include Encore Wire Corporation (WIRE - Free Report) , Lincoln Electric Holdings, Inc. (LECO - Free Report) and Lindsay Corporation (LNN - Free Report) , each flaunting a Zacks Rank of 1, at present.
Encore Wire has a projected earnings growth rate of 332.6% for fiscal 2021. So far this year, the company’s shares have gained 45%.
Lincoln Electric has an expected earnings growth rate of 45.1% for 2021. The stock has appreciated 22%, year to date.
Lindsay has an estimated earnings growth rate of 17.4% for fiscal 2021. The company’s shares have gained 35%, so far this year.
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Farm Equipment Demand & Investment in Technology to Aid Deere (DE)
On Aug 23, we issued an updated research report on Deere & Company (DE - Free Report) . The company will gain from higher agricultural commodity prices that will likely spur agricultural equipment demand in the near term. Improved scenario in the construction sector, as well as focus on investment in precision agriculture will continue to aid growth.
Deere reported third-quarter fiscal 2021 earnings of $5.32 per share, beating the Zacks Consensus Estimate of $4.49. The bottom-line figure also surged 107% from the prior-year quarter. Net sales of equipment operations came in at $10.4 billion, up 32% year over year. Revenues surpassed the consensus mark of $10.2 billion.
Higher Commodity Prices to Drive Growth
Improving farm income on escalating agricultural commodity prices has led farmers to boost investing in new equipment and replace their aging fleets. Grain and oilseed consumption is expected to outstrip supply this year. Deere expects to see strong double-digit growth in production rates for crop care products in fiscal 2022.
While government support is expected to decrease this year, principal crop cash receipts in the United States will likely increase 30% on higher commodity prices. The U.S customer sentiment has gone up over the last few quarters with elevated exports to China. Considering these factors, Deere raised its fiscal net income guidance to $5.7-$5.9 billion from the prior guidance of $5.3 billion to $5.7 billion.
Upbeat Farm Equipment Sales Forecast Bodes Well
For the Agriculture & Turf segment, the company expects industry sales of large agricultural equipment in the United States and Canada to be up roughly 25% for fiscal 2021, and small agricultural and turf equipment to be up 10%. In Europe, the industry is expected to be up around 10-15% as higher commodity prices favored business conditions in the arable segment.
In South America, industry sales of tractors and combines are likely to go up 20%. Higher commodity prices, strong production and a favorable currency environment have boosted farmers’ income leading to improved orders. Despite limited government-sponsored financing programs, private financing is more widely available this year and supporting continued strength in equipment demand. Industry sales in Asia are forecast to be up significantly, driven primarily by a strong recovery in the Indian tractor market.
Net sales for Deere’s Production and Precision Agriculture segment is anticipated to be up between 25% and 30% in fiscal 2021. The segment’s operating margin is expected between 20% and 21%. The Small Agriculture and Turf segment’s net sales is expected to be up 25% and its operating margin is forecast between 17% and 18%.
The company has also been witnessing improvement in the Construction & Forestry segment. North American construction equipment industry sales to be up between 15% and 20%, while sales of compact construction equipment are estimated to be up between 20% and 25%. Forestry equipment sales are expected to be up 15%, as lumber demand remains robust.
Sales for the Construction & Forestry segment are projected to be up 30% and operating margin is likely to be 12% to 13% in fiscal 2021. The company is likely to benefit from growth in non-residential investment and strong order activity from independent rental companies during the fiscal fourth quarter.
Advancement in Farming Technology to Spur Growth
Deere is well poised for growth over the long term, backed by steady investments in new products and geographies. Focus on launching innovative products equipped with advanced technologies and features, and investments in precision agriculture provide it a competitive edge. The company envisions to revolutionize agriculture with technology and make farming automated, easy to use and more precise across the production process. Farmers’ growing reliance on advanced technology to run their complex operations smoothly will continue to fuel Deere’s revenues.
Share Price Performance
Deere’s shares have gained 35.5% so far this year, outperforming the industry’s growth of 27.6%.
Image Source: Zacks Investment Research
Zacks Rank and Other Stocks to Consider
Deere currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
A few other top-ranked stocks in the Industrial Products sector include Encore Wire Corporation (WIRE - Free Report) , Lincoln Electric Holdings, Inc. (LECO - Free Report) and Lindsay Corporation (LNN - Free Report) , each flaunting a Zacks Rank of 1, at present.
Encore Wire has a projected earnings growth rate of 332.6% for fiscal 2021. So far this year, the company’s shares have gained 45%.
Lincoln Electric has an expected earnings growth rate of 45.1% for 2021. The stock has appreciated 22%, year to date.
Lindsay has an estimated earnings growth rate of 17.4% for fiscal 2021. The company’s shares have gained 35%, so far this year.