Shares of Deere & CompanyDE scaled a fresh 52-week high of $152.68 on Dec 4, eventually closing lower at $150.97. The upswing was driven by the news of closure of the Wirtgen acquisition.
The company has a market cap of $48.51 billion. In the last three months, its average volume of shares traded has been approximately 2.37M. Further, Deere surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average positive earnings surprise of 19.52%.
Investors are optimistic on this Zacks Rank #1 (Strong Buy) company, backed by Deere's recent strong order activity, acquisition of Wirtgen Group and promising U.S. GDP growth.
Further, Deere has an impressive VGM Score of A. 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 selects 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, 2 (Buy) or 3 (Hold), offer the best investment opportunities.
What Led to the 52-week High?
A look at Deere's price performance reveals that its shares have been on an uptrend since reporting third-quarter results in mid-August. Notably, the stock has gained 27.7% since then, outperforming the industry 's growth of 25.5%. Its upbeat fourth-quarter results announced on Nov 22 further fueled the share price appreciation. Deere had hit a 52-week high of $148.83 on Nov 27 on the back of the strong fourth-quarter fiscal 2017 results and upbeat fiscal 2018 outlook. The company's earnings in fourth-quarter fiscal 2017 surged around 74% year over year to $1.57. Net sales of equipment operations also climbed 26% year over year.
For fiscal 2018, Deere guides total equipment sales to increase about 22% and net sales to rise about 19% year over year from fiscal 2017. Net income is likely to be about $2.6 billion. Segment wise, Agriculture and Turf is projected to witness 9% increase in sales in fiscal 2018. Sales for Construction & Forestry segment is projected to be up about 69% (or 15% excluding Wirtgen contribution). Net income from Financial Services is anticipated at $515 million for fiscal 2018.
Deere's recent announcement that it has closed the much-awaited acquisition of Germany-based Wirtgen, the world's leading road-construction equipment maker, triggered the new 52-week high on Dec 4. The buyout of Germany-based Wirtgen will aid Deere's North America-centric construction business expand to a global scale and also catapult it to the position of an industry leader in global road construction. This is touted to be its largest deal ever and expected to immediately boost earnings.
Deere makes equipment for part of the road-building process - loaders and dump trucks to load rocks into crushers from quarries, earthmoving tools at construction sites, as well as dozers and motor graders that help grade roads. Wirtgen's products are complementary to Deere's portfolio and the combined business will benefit from sharing best practices in distribution, customer support, manufacturing and technology as well as in scale and efficiency of operations.
The acquisition aligns with Deere's long-term strategy to expand in both agriculture and construction - the company's two global growth businesses. With this acquisition Deere plans to capitalize on the expected increase in infrastructure if President Trump's plans of big spending in infrastructure are implemented.
Despite a weak agricultural sector continues Deere has delivered improved margin performance thanks to cost cutting actions. Replacement demand due to an aging stock will sustain demand in the Agriculture and Turf segment. The Construction and Forestry segment will benefit from positive conditions in residential and non-residential markets in the United States as well as an improved oil and gas sector. Further, rising investment in infrastructure will spur growth. The Wirtgen acquisition will add about 54% to the sales for the segment.
Going forward, the company will continue to gain from disciplined cost management and continued investment in innovative technology and solutions. In the long term, the company is likely to gain from favorable trends, supported by increasing population and rising living standards.
Deere & Company Price and Consensus
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 30 days, reflecting analysts' bullish sentiments. The earnings estimate for fiscal 2018 has gone up 14%, while that of fiscal 2019 moved up 20%.
The above-mentioned tailwinds raised investors' optimism on the stock and are anticipated to boost the company's share price in the days ahead.
Other Stocks to Consider
Other top-ranked stocks worth considering in the same sector are Caterpillar, Inc. CAT , Terex Corporation TEX and The Manitowoc Company, Inc. MTW . All three stocks flaunt a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .
Caterpillar generated an average positive earnings surprise of 53.06% in the past four quarters. The company's shares have surged 52.6%, year to date.
Terex has an average positive earnings surprise of 135.92% in the trailing four quarters. Its share price has gained 47%, year to date.
Manitowoc has an average positive earnings surprise of 139.10% in the last four quarters. The company's share price has surged 63%, year to date.
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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.