Deere & Co. is Tuesday's IBD Stock Of The Day as the farm equipment giant rose past a buy point following smaller rival AGCO's big earnings surprise.
Deere is set to report fiscal first-quarter earnings through January on Feb. 18. On Tuesday, IBD's SwingTrader platform, which capitalizes on short-term market trends, added Deere to its portfolio.
Agricultural Stocks Bloom
A range of agriculture stocks participated in Tuesday's move, with AGCO popping nearly 9% after its earnings beat and raise. Bunge, an agribusiness and biofuel firm, grew 2.1%, moving further into a buy zone ahead of earnings early Wednesday. Insecticide and herbicide supplier FMC climbed 2.7% ahead of its after-the-close earnings. And fertilizer supplier Mosaic, another recent SwingTrader pickup, edged higher into buy range.
"We are forecasting sales growth and margin expansion in 2022 as industry demand trends positively," AGCO CEO Eric Hansotia said in a statement. The Duluth, Ga., company posted Q4 EPS of $3.08, double the year-ago result and way ahead of $1.77 estimates. Guidance for 2022 EPS of $11.50 on $12.3 billion in sales improved on estimates of $10.51 on $11.9 billion in sales, according to Zacks Investment Research.
The inflationary environment has been good for the ag sector, as farm incomes benefit from healthy demand and the ability to pass along increases in input costs. That's made a fertile climate for Deere, which is benefiting from a product upgrade cycle as its productivity-enhancing machinery allows farms to do more with less.
In reporting fiscal Q4 results on Nov. 24, Deere indicated that production was basically sold out through fiscal Q3.
Deere has had its own cost issues, weathering a labor strike and supply-chain challenges. While more generous labor contract provisions are a headwind, Deere may get relief from steel prices this year. The Midwest hot-rolled coil price has fallen by about one-third to $1,162 a ton since the start of November.
Deere Stock Analysis
DE stock rose 4.75% to 389.88 in Tuesday's stock market action. Deere stock cleared a 388.20 buy point from a cup-with-handle base. The buy point is 10 cents above the Jan. 19 handle high of 388.10.
SwingTrader picked up DE stock when it broke clear of a down-sloping trendline from its Jan. 19 handle high.
Deere has had a couple of tests of its 50-day moving average in recent weeks, but sprang higher both times, a positive sign.
Deere stock has been consolidating since hitting an all-time high of 400.34 early last May.
Deere's relative strength line, which tracks its performance vs. the S&P 500, shows it lagged the market from last March through December. But with inflation and interest-rate concerns percolating this year, DE stock has shown resilience. Its RS line recently hit consolidation highs and isn't far from record highs.
Deere Goes Autonomous, Electric
Deere made some waves when it unveiled an autonomous tractor on Jan. 4 at the CES show. The tractor will be ready for scaled production later this year. Baird analyst Mircea Dobre wrote that the tractor could revolutionize farming and lead to a multiyear cycle of equipment upgrades.
Subsequently, Deere boasted eight of 50 new products recognized by Society of Agricultural and Biological Engineers as the year's most innovative. Among Deere's winners was its See & Spray Select, whose advanced camera and control technology can reduce the use of herbicide by 77%.
On Tuesday, Deere said it had completed its acquisition of Kreisel Electric, an Austrian company that makes electric-battery packs for off-highway operations and has its own charging infrastructure platform. Analysts said the deal, first announced in December, could accelerate Deere's offering of a fully electric and autonomous fleet.
Please follow Jed Graham on Twitter @IBD_JGraham for coverage of economic policy and financial markets.
