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How Does Deere’s Stock Performance Stack Up against Competitors?

Shannon Black

Can Deere Plow Its Way out of the Woods in Fiscal 2Q16?

(Continued from Prior Part)

Deere’s record in expectations management

Deere & Company (DE) has a consistent record of beating earnings expectations. Deere’s earnings have eclipsed Wall Street’s estimates for the past eight quarters. But the company has been less successful in catching up with sales forecasts, having beaten these estimates in only three of the past eight quarters.

We feel that long-term investors are unlikely to be enthusiastic if earnings come in slightly above expectations. The bar has been set quite low, given the steady downward revisions in the company’s earnings estimates in 2015. As long as the long-term fundamentals remain intact, long-term investors have few reasons to build or exit positions based on an earnings miss or beat.

Deere’s stock beats market but trails peers

As seen in the graph above, Deere’s stock (DE) returned 10.6% in the first four months of 2016. This was almost four times the returns of the S&P 500, which rose by only 2.6% in the same period.

The performance of Deere’s competitors in the agriculture (DBA) and construction (ITB) equipment industries have been better. Despite a dismal earnings graph, Caterpillar (CAT) saw its shares rise by 14.3% in the first four months of 2016. AGCO Corporation (AGCO) rose by a massive 18.8% in the same period.

Investors should note that DE’s and CAT’s stocks declined by 14% and 26%, respectively, in 2015 due to debilitating conditions in their end markets. The S&P 500 fell by 0.6% in the same period, and only AGCO had it better, with stock returns of 0.4% for the 12-month period in 2015.

In the next and final part, we’ll check in with analyst recommendations for Deere ahead of the company’s fiscal 2Q16 earnings release.

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