Deere (DE) provided a strong outlook for 2023 early Wednesday after beating earnings and revenue estimates for its fourth quarter despite supply headwinds. DE shares jumped out of a buy zone.
Deere, an industry leader, benefited from farm equipment prices driven high due to parts shortages, as well as higher crop prices. These benefits were offset by economic uncertainty and inflationary pressures.
In addition, both Deere and caterpillar (CAT) expect to benefit from US infrastructure spending. DE shares earn a spot on the prestigious IBD Leaderboard.
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Estimates: Analysts polled by FactSet had expected Deere’s October quarter earnings to rise 73% to $7.11 a share. Total revenue increased 27% to $14.4 billion.
Results: Deere earnings jumped 81% to $7.44 a share, a sharp acceleration from the 16% increase in the quarter ended July. Revenue fell 37% to $15.54 billion, the third quarter of accelerating sales growth.
View: Deere expects fiscal 2023 net income of $8 billion to $8.5 billion, higher than consensus and up from $7.13 billion in fiscal 2022. Analysts now see profit for DE share up 11.4% to $25.92.
“Deere looks forward to another strong year in 2023, based on positive farm fundamentals and fleet dynamics, as well as increased infrastructure investment,” CEO John May said in Deere’s earnings release Wednesday.
Last summer, the agricultural and construction equipment maker was unable to complete large tractors due to a shortage of spare parts. But May said on Wednesday that strong fourth-quarter and fiscal 2022 results reflect “extraordinary efforts to overcome supply chain constraints, scale up factory production and deliver products to our customers.”
Deere’s shares rose 6.7% to 444.39 in today’s stock market.
DE stock passed a buy point of 406.12 cup with handle on Nov. 8. It is now extended which means the stock is not in the buy range. Buy range extends to 426.43, leaderboard chart analysis shows.
The relative strength line for DE stock hit a new high on Wednesday after rallying over the summer.
DE shares perform very well in terms of key IBD ratings. She earns a perfect composite score of 99. She also has an EPS score of 94 and an RS score of 92, both out of a possible 99.
CAT stock rose 3.2% Wednesday, before trimming gains to 0.1%. Shares briefly regained an entry of 238 on Wednesday. In late October, Caterpillar beat third-quarter earnings estimates, and revenue also beat.
Other agricultural stocks to watch include grain processors Archer Daniels Midland (ADM), fertilizer producer CF Industries (CF) e Lindsay (LNN), an irrigation equipment manufacturer that is also taking a role in the green hydrogen infrastructure space.
The market rally has yet to do so
Deere tractors face parts shortages
Tractor maker Deere increased sales at a rapid pace, driven by strength in machinery prices and demand for large farm equipment. But shortages of chips and other parts resulted in partially built machines, left waiting for parts for workers to finish assembling.
Profitability has been under pressure from supply chain challenges, leading to significant manufacturing inefficiencies,” Edward Jones analyst Matt Arnold wrote in a note this summer.
These inefficiencies are expected to decrease as supply chains normalize. “Demand for Deere products remains very strong and we expect the favorable demand environment to continue given high grain prices and rising infrastructure spending,” Arnold added.
A fleet of outdated agricultural machinery is driving up the demand for replacements. Deere also manufactures excavators, backhoes, dump trucks and wheel loaders for the construction market.
Arnold values DE stock as a buy.
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