Deere (DE) Hits 52-Week High On Strong Q4 & Upbeat FY18 View

Shares of Deere & Company (NYSE:DE) scaled a fresh 52-week high of $148.83 on Nov 27, eventually closing lower at $148.77. The upswing stemmed from Deere’s solid performance in fiscal 2017 as well as an encouraging outlook for fiscal 2018.

The company has a market cap of $47.8 billion. Over the last three months, its average volume of shares traded has been approximately 2.3M. Also, Deere surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with an average positive earnings surprise of 19.52%.

Price Performance

Notably, the stock has gained 48.2% in a year’s time, higher than the S&P 500’s gain of 17%. Deere has also outperformed the VGM Score of B. In this V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score eliminates the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.

Our research shows that stocks with Style Scores of A or B, when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3, offer the best investment opportunities.

What Led to the 52-week High?

Deere’s shares have gained nearly 7% since it reported fourth-quarter and fiscal 2017 results on Nov 22. Its earnings surged around 74% year over year and surpassed the Zacks Consensus Estimate. Net sales of equipment operations also climbed 26% year over year.

Notably, Deere’s Agriculture & Turf segment sales, comprising 77% of revenues, rose 22% year over year in the fiscal fourth quarter, primarily due to higher volumes and a favorable sales mix. In addition, the Construction & Forestry segment’s sales improved 37% year over year attributable to higher volumes, better price realization, and favorable foreign exchange currency hedging.

Deere projects total equipment sales to be up nearly 38% year over year in first-quarter fiscal 2018 and 22% in fiscal 2018 compared with the year-ago periods. For fiscal 2018, the company guides net sales to rise roughly 19% year over year, and projects net income of about $2.6 billion.

Further, the construction investment is forecast to grow in 2018, led by oil and gas, and residential activity. Oil prices are expected to be above $50, which is important since oil and gas-related activity tends to slow when oil prices are below $50 and picks up when prices are above that level. Additionally, machinery rental utilization rates continue to improve and rental pricing is also gaining traction.

Deere’s strong order activity in both early-order programs for seasonal products and order book for large tractors also supports the outlook. Its upbeat outlook is also backed by U.S. GDP, which is anticipated to be up 2.5% in fiscal 2018. Also, crude oil prices are expected to rise, which will encourage crude oil production and improve construction equipment demand.

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Wirtgen Acquisition to be a Growth Driver

Deere expects the acquisition of the Wirtgen Group to close in December 2017. The buyout is expected to contribute about $3.1 billion in net sales in fiscal 2018. Wirtgen is likely to add about 12% to Deere's sales for the fiscal year and about 6% for the fiscal first quarter in comparison with fiscal 2017. After estimating expenses for purchase accounting and transaction costs, Wirtgen is expected to contribute about $75 million to operating profit and about $25 million to net income in fiscal 2018.

Upward Estimate Revisions

Furthermore, Deere’s positive estimate revisions reflect optimism in the company’s potential, as earnings growth is often an indication of robust prospects (and stock price gains) ahead. Estimates for Deere have moved up over the past seven days, reflecting analysts’ bullish sentiments. The earnings estimate for fiscal 2018 has gone up 4.7%, while that of fiscal 2019 moved up 6%.