Bull of the Day: Deere & Co (DE)

A strong management team can guide a company through difficult periods and prepare the business for better times. This is what Deere & Co.'s management's team has done. The past several years have been difficult for the agricultural business, but the team made some prudent cost cutting measures and shifted their focus towards other segments within the company. These moves have begun to bear fruit and now Deere & Co ( DE ) is our Zacks Bull of the Day.

This Zacks Ranked #1 (Strong Buy) company is the one world's foremost producers of agricultural equipment as well as a leading manufacturer of construction, forestry, and commercial and consumer equipment. The company, in addition, provides credit, special technology, and managed health-care products and services.

Recent Earnings

The company recently announced Q2 17 earnings where they easily beat both the Zacks consensus earnings and revenue estimates. On a year over year basis the company saw gains in net income +62%, worldwide net sales +5%, worldwide revenues +5%, and net sales of equipment operations +2.2%.

Also, due to the strong performance and expected continuation of this trend, management increased FY 17 guidance in several segments; Equipment sales +9% (was +4%), Agricultural & Turf sales +8% (was +3%), and Construction & Forestry sales +13% (was +7%).

Management's Take

According to Samuel R. Allen, chairman and chief executive officer, " John Deere reported strong results in the second quarter as market conditions showed signs of further stabilization. We are seeing modestly higher overall demand for our products, with farm machinery sales in South America experiencing a strong recovery. Deere's performance also reflects the sound execution of our operating plans, the strength of a broad product portfolio, and the impact of our actions to develop a more agile cost structure. As a result, we have raised our forecast and are now calling for significantly higher earnings for the full year ."

Mr. Allen went on further to state, " Deere is demonstrating a continuing ability to produce impressive results through all phases of the business cycle. This resilience illustrates our success driving improved operating efficiencies and developing a wider range of revenue sources. It also shows the impact of the company's consistent investments in advanced technology, new products and additional markets. These actions are leading to strong performance in 2017, and they reinforce our conviction that Deere is well-positioned to deliver significant value to customers and investors over the long term ."

Acquisition Announcement

On June 1st Deere announced the acquisition of Wirtgen Group for $5.2 billion. This purchase is expected to strengthen Deere's construction and forestry segment and expand their international presence. Wirtgen is a German road construction company with products in the road construction and mineral technology areas. This transaction is expected to close and be accretive in Q1 18.

Price and Earnings Consensus Graph

As you can see in the table below, the stock has been performing quite well since the end of 2017, and the recent earnings beat and acquisition has analysts increasing their future earnings estimates.

Deere & Company Price and Consensus

Deere & Company Price and Consensus | Deere & Company Quote

Increasing Estimates

Due to the strong earnings report and subsequent acquisition announcement earnings estimates for Q3 17, Q4 17, FY 17 and FY 18 have all seen upward revisions; Q3 17 rose from $1.48 to $1.85, Q4 17 improved from $1.10 to $1.34, FY 17 jumped up from $4.83 to $6.21, and FY 18 increased from $5.59 to $6.71.

Bottom Line

With their core agricultural segment coming out of a long term down turn, Deere is expanding their reach into several emerging markets such as Russia, India, China and Brazil. The recent purchase of Wirtgen will strengthen their construction and forestry (C&F) segment which will enable them to capitalize on new domestic infrastructure projects. Finally, management also commented that they are on track to meet their $500 million cost savings goal by the end of FY 18.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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