Deere gave a strong 2023 outlook early Wednesday after beating earnings and revenue estimates for its fourth quarter, despite supply headwinds. DE stock jumped out of a buy zone.
Deere, an industrial bellwether, has benefited from farm equipment prices forced to record highs by parts shortages, as well as by higher crop prices. Those benefits have been offset by economic uncertainty and inflationary pressures.
In addition, both Deere and Caterpillar expect to benefit from U.S. infrastructure spending. DE stock earns a spot on the prestigious IBD Leaderboard list.
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Deere Earnings
Estimates: Analysts polled by FactSet expected Deere earnings for the October quarter to vault 73% to $7.11 per share. Total revenue was seen jumping 27% to $14.4 billion.
Results: Deere earnings leapt 81% to $7.44 a share, a big acceleration from the July-ended quarter's 16% advance. Revenue popped 37% to $15.54 billion, the third quarter of accelerating sales growth.
Outlook: Deere expects fiscal 2023 net income of $8 billion-$8.5 billion, above consensus and up from $7.13 billion in fiscal 2022. Analysts now see DE earnings per share rising 11.4% to $25.92.
"Deere is looking forward to another strong year in 2023 based on positive farm fundamentals and fleet dynamics, as well as an increased investment in infrastructure," CEO John May said in the Deere earnings release Wednesday.
This past summer, the farm and construction equipment maker was unable to complete large tractors due to parts shortages. But May said Wednesday that strong Q4 and fiscal 2022 results reflected "extraordinary efforts to overcome supply-chain constraints, increase factory production, and deliver products to our customers."
DE Stock
Shares of Deere gapped up 5.1% to 437.73 on the stock market today.
DE stock broke past a 406.12 cup-with-handle buy point on Nov. 8. It is now extended, meaning shares are not in buy range. The buy range stretches to 426.43, Leaderboard chart analysis shows.
The relative strength line for DE stock hit a new high ahead Wednesday after surging over the summer.
DE stock screens very well in terms of key IBD ratings. It earns a perfect Composite Rating of 99. It also bears an EPS Rating of 94 and RS Rating of 92, both out of a best-possible 99.
CAT stock eased 0.1% Wednesday. Shares briefly regained a 238 buy pint Wednesday. In late October, Caterpillar crushed Q3 earnings estimates, and revenue also beat.
Among other ag stocks to watch are grain processor Archer-Daniels-Midland, fertilizer producer CF Industries and Lindsay, a producer of irrigation equipment that is also taking up a role in the green hydrogen infrastructure space.
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Deere Tractors Face Parts Shortages
Tractor maker Deere has been growing sales at a robust clips, driven by strength in machinery prices and demand for large farm equipment. But shortages of chips and other parts led to partially built machines, left awaiting parts for workers to complete assembly.
Profitability was pressured by supply-chain challenges, which drove significant production inefficiencies," Edward Jones analyst Matt Arnold wrote in a note this summer.
Those inefficiencies are expected to abate as supply chains normalize. "Demand for Deere's products remains very robust, and we expect the favorable demand environment to remain, given high grain prices and rising infrastructure spending," Arnold added.
An aging farm machinery fleet is driving up replacement demand. Deere also makes excavators, back hoes, dump trucks and wheel loaders for the construction market.
Arnold rates DE stock a buy.
