Shares of Deere & Company DE, one of the world's foremost producers of agricultural equipment as well as a leading manufacturer of construction, forestry as well as commercial and consumer equipment, has been performing well of late.
If you haven’t taken advantage of the share price appreciation yet, the time is right for you to add the stock to portfolio as it looks promising and is poised to carry the momentum ahead. The Zacks Rank #2 (Buy) stock has an estimated long-term earnings growth rate of 7.58%.
Estimates for Deere have moved up in the past 30 days, reflecting the optimistic outlook of analysts. The earnings estimate for fiscal 2017 and fiscal 2018 have both gone up 1%.
For fiscal 2017, the Zacks Consensus Estimate for earnings is pegged at $4.83, depicting a year-over-year growth of 0.47% while the estimate for fiscal 2018 of $5.59 reflects year-over-year growth of 15.73%.
Positive Earnings Surprise History
Deere has outpaced the Zacks Consensus Estimate in the trailing four quarters, delivering a positive average earnings surprise of 60.50%.
Ahead of the Industry
The company has outperformed the Zacks categorized Machinery-Farm subindustry in the past one year. Shares have gained 38.4% while the industry registered an increase of 35.7%.
We note that the industry is also favorably placed as it occupies a space in the top 6% of the Zacks classified industries (15 out of the 256).
Despite weak global agricultural sectors, Deere continues to perform well driven by ongoing success of developing a more durable business model and a wider range of revenue sources. The company will gain from the implementation of operating plans and disciplined cost management as well as the impact of a broad product portfolio.
Deere projects total equipment sales to increase about 4% year over year in fiscal 2017 and rise about 1% in second-quarter fiscal 2017 compared with year-ago period. For fiscal 2017, it anticipates net sales to be up 4% year over year and projects net income of $1.5 billion.
The company’s sales of worldwide agriculture and turf equipment are now anticipated to be up about 3% in 2017. The division's operating margin is predicted to be about 9% in 2017, roughly in line with 2016. Outlook for the construction and forestry industries remains optimistic backed by improvement in the fundamentals. Construction investment in oil and gas activity improved in fourth-quarter 2016 after seven quarters of decline, while residential and commercial institutional construction continued to increase moderately. Deere's construction forestry sales are now forecast to be up about 7% in 2017, largely on the back of production moving closer to retail demand.
Stock Seems Undervalued
Deere has a trailing 12-month price earnings (P/E) ratio of 24.56 while the Zacks categorized sub industry’s average trailing 12-month P/E ratio is 25.52. Based on this ratio, the stock seems undervalued.
Earnings Beat Likely in the Next Quarter
Our proven model shows that Deere is likely to beat earnings this quarter. This is because the company has the right combination of two key ingredients – a positive Earnings ESP (the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate) and a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Deere’s Zacks Rank #2 and Earnings ESP of +2.44% makes us confident of an earnings beat this quarter.
Other Stocks to Consider
Other top ranked stocks worth considering in the same sector are AGCO Corporation AGCO, Caterpillar, Inc. CAT and Rockwell Automation Inc. ROK. AGCO and Caterpillar flaunt a Zacks Rank #1, while Rockwell carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
AGCO has an average positive earnings surprise of 40.39% in the trailing four quarters. Caterpillar generated an average positive earnings surprise of 40.25% in the past four quarters. Rockwell Automation has an average positive earnings surprise of 9.89%.
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