Thanksgiving and Deere’s Earnings Report

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Thanksgiving is just around the corner, marking the end of autumn. This holiday is synonymous with good food and football for many Americans. However, it also brings anticipation for Deere’s earnings report – a leading agricultural equipment manufacturer.

Deere’s fiscal year coincides with the conclusion of the harvest season in the U.S. and the Northern Hemisphere, making October an essential month for the company. This Wednesday morning, Deere will release its fourth-quarter numbers, offering investors insights into what to expect in fiscal 2024.

Analysts on Wall Street have high expectations for Deere’s fourth-quarter performance. They anticipate earnings per share (EPS) of $7.46, with machinery sales amounting to approximately $13.6 billion. Comparatively, in the same period last year, Deere reported EPS of $7.44 and generated $14.4 billion from equipment sales.

While the reported earnings are crucial, investors will likely be more influenced by the company’s forecasts.

Last year, at the beginning of fiscal year 2023, Deere estimated a net income range of $8 billion to $8.5 billion. However, management revised this projection upward multiple times throughout the year. Presently, Deere expects to achieve a net income between $9.75 billion and $10 billion, while analysts predict $10 billion.

Looking ahead to fiscal 2024, Wall Street analysts project a net profit of $9.3 billion, indicating concerns about declining farm incomes and agricultural product prices reaching their peak.

Over the past year, corn and soybean prices have dropped approximately 29% and 4%, respectively. According to the U.S. Department of Agriculture, farm income is forecasted to reach $141 billion in 2023, a considerable decline from $183 billion in 2022.

In a recent report, Citi analyst Timothy Thein emphasized that most dealers expect a challenging year in 2024.

Despite the approaching holiday festivities, Deere’s earnings report and forecasts for the future are undoubtedly capturing the attention of investors and industry experts alike.

Deere Dealers Remain Cautious, but Positive Outlook Remains

Deere & Company recently visited several dealers to discuss the current state of the agricultural equipment market. According to their findings, there is a sense of caution, but it seems to be more of a “soft landing” rather than a significant downturn.

The decline in commodity prices and income has naturally affected equipment demand and pricing. However, despite these challenges, farm income remains at a healthy level. In fact, it is expected that the total farm income for this year will reach a staggering $141 billion, which would be the second-highest reading ever recorded.

To gain further insight into Deere’s performance, investors are eagerly waiting for the conference call hosted by Deere management at 10 a.m. Eastern time. The focus of the discussion will be on dealer inventories and ordering patterns, which will provide valuable information regarding the company’s future prospects.

Option markets suggest that there could be a 4% swing in Deere’s stock price following the earnings announcement. Over the past four quarterly reports, shares have typically moved by approximately 5%. This unpredictability has resulted in two instances of share price growth and two instances of decline.

Analysts are optimistic about Deere’s future, with Thein rating the company’s shares as “Buy” and setting a price target of $475 per share. This sentiment is echoed by approximately 60% of analysts covering the stock, as compared to the average “Buy” rating ratio of about 55% for companies listed in the S&P 500. Additionally, the average analyst price target for Deere’s shares stands at approximately $440.

Currently, Deere’s stock is trading at about 11.5 times the estimated earnings for the calendar year 2024. In comparison, the S&P 500 trades at a higher multiple of about 18 times. The lower valuation for Deere reflects investors’ concerns about the challenges faced by the agricultural industry.

Over the past 12 months, Deere’s stock has seen a decline of approximately 8%, while the S&P 500 and Dow Jones Industrial Average have witnessed gains of around 13% and 3%, respectively.

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