Deere & Company stock (NYSE: DE) is scheduled to report its fiscal first-quarter results on Friday, February 19. We expect Deere to likely post revenues and earnings slightly below the consensus estimates. While Deere is expected to benefit from improved demand for agriculture as well as construction equipment, as the economies gradually rebound, the continued headwinds in oil & gas will likely remain a concern in the near term. That said, our forecast indicates that Deere’s valuation is around $330 a share, which is 5% above the current market price of around $315. Now, based on our estimates, the company will likely report numbers below the street expectations, which is likely to result in DE stock trading lower post Q1 announcement, and that may offer a good entry point for long term investors to buy the stock. Look at our interactive dashboard analysis on Deere & Company Pre-Earnings: What To Expect in Q1? for more details.
(1) Revenues expected to be below the consensus estimate
Trefis estimates Deere’s Q1 fiscal 2021 total revenues to be around $7.1 Bil, slightly below the consensus estimate of $7.2 Bil. While construction equipment sales were heavily impacted due to the Covid impact, the improved demand from agriculture helped offset some of this headwind. While construction equipment sales were down 16% to $2.5 billion, agricultural equipment sales were up 8% to $6.2 billion, leading to a sales growth of 1% year-over-year (y-o-y) in Q4 2020. The company is seeing an increased spending on agricultural equipment, primarily small tractors, and this could drive the revenues in Q1. The company in its previous earnings conference call provided an outlook for a 10% to 15% revenue growth for Agriculture & Turf segment in 2021, primarily small agriculture, which ended the year at historic lows for inventory to sales ratio, and the company expects the inventory levels to rebound in 2021. However, the picture isn’t that pretty for the construction sector. Deere forecasts construction equipment sales in the U.S. and Canada to be down 5%, due to continued headwinds in the oil & gas as well as commercial real estate. Yet, aided by growth in forestry, the overall Construction & Forestry segment sales are expected to be up 5% to 10% in 2021. Our dashboard on Deere Revenues provides more details on segment-wise revenue breakup.
2) EPS likely to be below the consensus estimates
Deere’s Q1 2021 earnings per share (EPS) is expected to be $2.10 per Trefis analysis, slightly below the consensus estimate of $2.14. Deere’s net income of $757 million in Q4, reflected a 5% growth from its $722 million profit in the prior year quarter. However, the earnings remained down 15% for the full fiscal 2020, owing to the impact of the pandemic, primarily in the first half of the fiscal. Q4 also saw a higher price realization for Deere’s agriculture and turf business, aiding the overall margins, a trend which could continue in Q1 as well. Looking at the full year 2021, we expect a 50% y-o-y growth in EPS to $13.10, aided by both revenue growth as well as margin expansion.
(3) Stock price estimate higher than the current market price
Going by our Deere & Company Valuation, with an EPS estimate of around $13.10 and P/E multiple of 25x in fiscal 2021, this translates into a price of $330, which is 5% above the current market price of around $315.
Although the coronavirus outbreak has had a sizable impact on Deere’s business in fiscal 2020 due to lower demand for its equipment, we believe the demand for both agriculture as well as construction equipment will rebound as the spread of the virus subsides.
Note: P/E Multiples are based on Share Price at the end of the year, and reported (or expected) Adjusted Earnings for the full year
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