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Deere & Company DE is gaining from solid fundamentals in the farm sector on the back of higher agricultural commodity prices and improving demand in the construction sector. Focus on incorporating advanced technologies and features in its products, and intensifying investments in precision agriculture will drive growth for the company.
The company currently has a Zacks Rank #2 (Buy) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, combined with a Zacks Rank #1 (Strong Buy), or 2, or 3 (Hold), offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Let’s take a look into the factors that make this stock an attractive choice for investors right now.
Shares of Deere have soared 119.7% over the past year compared with the industry’s rally of 113.7%. It has also outperformed the S&P 500’s roughly 40.6% rise over the same period.
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Estimates Going Up
Over the past two months, the Zacks Consensus Estimate for Deere for fiscal 2021 has increased around 11%. The consensus estimate for fiscal 2022 has also been revised 11% upward over the same time frame.
Positive Earnings Surprise History
Deere has outpaced the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average surprise being 67.9%.
Healthy Growth Prospects
The Zacks Consensus Estimate for earnings for fiscal 2021 for Deere is currently pegged at $17.69, suggesting year-over-year growth of 104%. Moreover, earnings are expected to register an improvement of 14.7% in fiscal 2022 to $20.30.
Superior Return on Equity (ROE)
Deere’s ROE of 33.3%, as compared with the industry average of 26%, highlights the company’s efficiency in utilizing shareholder’s funds.
Growth Drivers in Place
Improving farm income driven by recovering agricultural commodity prices has led farmers to resume investing in new equipment and replacing their aging fleets. While government support is expected to decrease this year, principal crop cash receipts in the United States are expected to increase 30% gaining from higher commodity prices. Further, U.S customer sentiment has gone up over the last few quarters with elevated exports to China.
Given the positive environmental backdrop, Deere has witnessed robust order activity, which poises it well for an improved performance in this fiscal and the next. Deere raised its net income guidance for fiscal 2021 to a range of $5.3 billion to $5.7 billion from the prior $4.6 billion to $5.0 billion. The mid-point of the new range suggests year-over-year improvement of 100%.
Deere has also been witnessing improvement in the Construction & Forestry segment. Backed by strength in the housing market as well in non-residential sector, it expects North American construction equipment industry sales to be up between 15% and 20%, while sales of compact construction equipment are expected to be up between 20% and 25% in fiscal 2021.
The company is assessing cost structure by reviewing organization efficiency and footprint assessment, which in turn will help improve margins. It has implemented actions to strengthen its financial position and preserve liquidity.
Deere remains well-poised for growth over the long term, backed by steady investments in new products and geographies. The company will benefit from concerted focus on launching products with advanced technologies and features, which provides it a competitive edge. The company remains focused on revolutionizing agriculture with technology in an effort to make farming automated, easy to use and more precise across the production process. Their growing reliance on advanced technology to run their complex operations smoothly will continue to fuel its revenues.
Other Stocks to Consider
Some better-ranked stocks in the industrial products sector are Tennant Company TNC, Encore Wire Corporation WIRE and Arconic Corporation ARNC. All of these stocks sport a Zacks Rank #1, at present.
Tennant has an anticipated earnings growth rate of 49.5% for the current year. The company’s shares have gained around 18%, year to date.
Encore Wire has an estimated earnings growth rate of 49.5% for the ongoing year. Year to date, the company’s shares have rallied nearly 36%.
Arconic has a projected earnings growth rate of 447% for the current year. The stock has appreciated around 21% so far this year.
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