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Bull of the Day: Deere & Company (DE)

Ryan McQueeney
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Bull of the Day: Deere & Company (DE)

Concerns about rising volatility were quickly replaced by fears of an impending trade war this week, making it clear that investors are hesitant to become over confident in the current economic landscape. Still, there is clearly plenty of strength in many core areas of the economy, including agriculture and industrials, and investors searching for a great pick in these segments should look no further than Deere & Company (DE).

Through its John Deere brand, Deere & Company is a leading manufacturer of agricultural, construction, and forestry machinery. The company was founded in 1837 and is one of the most historic American corporations around, but management’s commitment to investment and innovation has kept it on the cutting edge through the years.

Deere & Company shares have surged about 45% over the past year, significantly outpacing its industry peers. And after another strong quarter, the company has witnessed a tidal wave of positive estimate revisions, earning it a Zacks Rank #1 (Strong Buy).

Latest Earnings Report

Deere reported its first-quarter fiscal 2018 results on Feb. 16. The company posted adjusted earnings of $1.31 per share, crushing the Zacks Consensus Estimate of $1.16 and improving a staggering 11% year over year. Total equipment revenues totaled $5.97 billion, up 27% from the year-ago period.

Region wise, equipment net sales increased 24% in the United States and Canada, and 33% in the rest of the world. Total net sales (including financial services) came in at $6.9 billion, up 23% year over year.

Looking at the company’s specific segments, Agriculture & Turf sales increased 18% to $4.3 billion, while operating profit at the segment climbed 78% to $387 million. Construction & Forestry sales surged 57% to $1.73 billion, mainly as a result of the Wirtgen acquisition—which added 5% to total net sales.

Deere also detailed its upbeat outlook for the remainder of the fiscal year. Management raised its total equipment sales growth outlook for fiscal 2018 to around 29%, up from prior guidance of about 22%. For fiscal 2018, Deere expects net sales to increase about 25% year over year and projects net income of about $2.1 billion.

Estimate Revisions and Key Stats

As we can see, Deere’s strong quarter has inspired a tidal wave of positive earnings estimate revisions. The key here is that we are seeing 100% agreement among the analysts that are revising their estimates. These analysts are in agreement with the company’s upbeat guidance, and we now expect Deere to have an even better fiscal 2018.

Furthermore, we see some opportunity here from a value perspective. The stock is trading at just 16.8x forward earnings, which is a noticeable discount to its industry’s average. What’s more, a P/S ratio of 1.7 is respectable, and the company is generating a staggering $12.06 in cash per share right now. And Deere’s 1.5% dividend might not be spectacular, but it is a welcome addition to an already-solid stock.

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