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Deere (DE) Hits New 52-Week High: What's Driving it?

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Deere & Company (DE - Free Report) scaled a fresh 52-week high of $436.95 during the trading session on Mar 25 before retracting to close at $436.45. Surging demand for agricultural equipment, driven by higher agricultural commodity prices, is driving share price appreciation. Also, the improved scenario in the construction and forestry sector and investments in precision agriculture are contributing to the rally.

Price Performance

Deere’s shares have gained 18.6% in the past year compared with the industry’s growth of 13.8%.

Zacks Investment Research
Image Source: Zacks Investment Research

Driving Factors

Deere is gaining from higher agricultural commodity prices amid supply concerns as tensions between Russia and Ukraine continue to escalate. Russia and Ukraine account for a fifth of the global corn trade, and a conflict in the region have fueled fears of disruption of grain exports.  Thus, prices for corn and soybean, the most important grains for cash crop farming, are moving higher. Higher prices will drive farm income and encourage farmers to continue spending on agricultural equipment. This will drive Deere's top line in the current year.

Despite limited government-sponsored financing programs, total crop cash receipts in the United States will likely be up 5.1% year over year in calendar 2022 on higher commodity prices. The U.S customer sentiment has moved up over the last few quarters with elevated exports to China. Considering these factors, Deere projects fiscal 2022 net income in the band of $6.7-$7.1 billion, suggesting an increase from $5.96 billion in fiscal 2021.

Positive fundamentals, including favorable crop prices, economic growth and increased infrastructure spending in fiscal 2022, will continue to drive farm and construction equipment demand. For the Agriculture & Turf segment, Deere expects industry sales of large agricultural equipment in the United States and Canada to be up roughly 20% for fiscal 2022. Small agricultural and turf equipment are expected to be up 15%. In Europe, industry sales are projected to be up 5% as higher commodity prices favor business conditions in the arable segment and dairy prices remain resilient. In South America, tractors and combines industry sales are likely to go up 5% to 10%.

Net sales for Deere’s Production and Precision Agriculture segment are anticipated to be up between 25% and 30% for fiscal 2022. The company is also witnessing improvement in the Construction & Forestry segment, with sales are projected to be up 10-15% for fiscal 2022. Earthmoving and compact equipment end markets are expected to remain strong for the fiscal year, owing to continued strength in the housing market, increased activity in the oil and gas sector as well as strong capex programs from the independent rental companies. Forestry equipment sales are expected to be up 10% to 15% as lumber demand remains robust. Sales in the Construction & Forestry segment are projected to be up 10-15% for fiscal 2022.

Deere is well poised for growth in the long term, backed by steady investments in new products and regions. Focus on launching innovative products equipped with advanced technologies and features as well as making investments in precision agriculture provides a competitive edge. DE is seeing strong demand from its new product launches like ExactRate planter applied fertilizer systems and AutoPath. The company envisions revolutionizing agriculture with technology and making 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 the company’s revenues.

Positive Growth Projections

The Zacks Consensus Estimate for fiscal 2022 earnings is currently pegged at $22.74, suggesting year-over-year growth of 19.7%. The estimate has been revised upward by 2.4% in the past 60 days.

Zacks Rank and Other Stocks to Consider

Deere currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some other top-ranked stocks in the Industrial Products sector are AGCO Corporation (AGCO - Free Report) , Applied Industrial Technologies, Inc. (AIT - Free Report) and Silgan Holdings Inc. (SLGN - Free Report) . While AGCO sports a Zacks Rank #1, AIT and SLGN carrying a Zacks Rank #2 at present.

AGCO Corp's fourth-quarter 2021 adjusted EPS increased 100% year over year to $3.08, beating the Zacks Consensus Estimate of $1.72. AGCO pulled off a trailing four-quarter earnings surprise of 56.6%, on average. In the past six months, the company’s shares have gained 12.2%.

AGCO Corp has an estimated earnings growth rate of around 12.1% for 2022. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 10.8%.

Applied Industrial Technologies reported adjusted EPS of $1.46 in second-quarter fiscal 2022 (ended Dec 31, 2021), up 49% year over year and beating the Zacks Consensus Estimate of $1.09. AIT pulled off a trailing four-quarter earnings surprise of 27.9%, on average.

Applied Industrial Technologies has an expected earnings growth rate of 24.3% for fiscal 2022. The Zacks Consensus Estimate for fiscal year’s earnings has moved up 8.8% in the past 60 days. AIT’s shares have gained 8.6% in the past six months.

Silgan Holdings’ fourth-quarter 2021 adjusted EPS increased 32% year over year to a record 79 cents, beating the Zacks Consensus Estimate of 73 cents. SLGN delivered a trailing four-quarter earnings surprise of 3.8%, on average.

Silgan has a projected earnings growth rate of 13.5% for the current year. The Zacks Consensus Estimate for 2022 earnings has moved north by 3.2% in the past 60 days. SLGN has moved up 16.2% in the past six months.