Deere & CO
) is seeing estimates for 2014 slide deeper and as a result it is a
Zacks Rank #4 (Sell). It is the Bear of the Day.
A Few Recent Downgrades
Over the last few weeks, a few brokerages may lowered their ratings
on DE. The most recent was Piper Jaffray, which lowered their
rating from Overweight to Neutral during the second week of July.
That followed an even bigger call from JP Morgan in late June. The
brokerage lowered their rating from Neutral to Underweight on the
Deere makes agriculture and turf equipment, and construction and
forestry equipment. Its Agriculture and Turf segment provides
agriculture and turf equipment, and related service parts,
including tractors; loaders; combines, corn pickers, cotton and
sugarcane harvesters. Deere was founded in 1837 and is
headquartered in Moline, Illinois.
The company has a relatively good history of beating the number. In
each of the last two quarters they were able to post a positive
earnings surprise. The two quarters preceding those were another
story. Two straight misses, including one with a negative earnings
surprise of more than 14% takes the luster off the two recent
Earnings Estimates Stuck In The Mud
Estimates for DE have declined of late. The 2013 estimates are
moving lower, but not by that much. Peaking at $8.59 in April they
have ticked lower to $8.52. But that is not where the real
The 2014 Zacks Consensus Estimate has moved lower in each month
since it reached a high of $8.93 in February. The number dipped to
$8.67 in May and is now down to $8.53.
The question becomes when will estimates stop falling?
The valuation picture for DE is a little mixed... with a good PE
valuation and a concern over the price to book. At 10x, the
multiple for both trailing and forward PE, DE compares favorably to
the industry average of 14x. The 4x price to book multiple,
however, is much higher than the 2.5x industry average. Price to
sales is in line with the industry average. When looking at growth
rates, investors would likely be concerned by a -2.5% top line
growth rate in 2013 and a 0.2% increase for 2014. Similarly, EPS
growth expectations of 0.2% for 2014 do not compare favorably with
the 12% industry average.
The price and consensus chart really shows the story of a stock
that had been a darling of Wall Street over the last few years but
has recently run into trouble. The colored lines represent
different years earnings estimates, and the nice 45 degree angle
has not only flattened out, it has turned around. If estimates
continue to decrease, the stock price will likely follow the
Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor
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