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By: Todd McDonald, Analyst

Overview

Deere & Co. (NYSE:DE) is slated to report 2Q 2013 earnings before the opening bell on Wednesday, May 15. Results are typically available at 7 a.m. EST with a conference call scheduled to follow at 10 a.m. EST. Given Deere's size and influence as an industrial bellwether, the results have the potential to impact the broader market gauges, including the S&P futures, particularly if results are significantly outside the range of current Street estimates.

Outliers & Strategy

  • Earnings Per Share: The current consensus estimates is $2.72, with a range of $2.55 to $2.87. (Source: Yahoo! Finance)
  • Revenues: The current Street estimate is $9.81 BLN, with a range of $9.55 BLN to $10.32 BLN.
  • Equipment Sales (2Q2013): According to Zack's Investment Research, estimates are for $9.915 bln.
  • Net Income Guidance (FY2013): In the 1Q2013 report, Deere gave net income guidance for FY2013 of $3.3 bln. The current Street estimate is for FY2013 net income of $3.379 bln.
  • Equipment Sales Guidance (FY2013): Given as a percentage, analysts are expecting an increase of 5.6% for FY2013. The company previously issued guidance of 6.00% for the same period.
  • Corn Prices, which tend to correlate closely with Deere, have slid approximately 4.4% since Deere's 1Q 2013 release, using the Teucrium Corn Fund ETF (NYSEARCA:CORN). However, prices have settled into a range beginning in early April.
  • Caterpillar (NYSE:CAT) recently missed earnings estimates on 04/22/13. However, the stock bounced off of $80 support and rallied about $10, or 12.50%, implying that the market was pricing in disappointing results.
  • Sympathy Plays: Caterpillar (CAT), Joy Global (NYSE:JOY), Monsanto (NYSE:MON), Titan International (NYSE:TWI), Stoneridge Inc. (NYSE:SRI)
  • Implied Volatility: The average move after earnings over the past eight quarters has been 3.45%. Options premiums are pricing in an absolute move of approximately 4.27%.

Recent News

  • 04/17: Macquarie downgraded Deere to Neutral from Outperform and lowered its price target from $102 to $95, according to a post on StreetInsider.com. The firm believes that equipment demand will remain muted due to lower commodity prices.
  • 03/19: According to a post on StreetInsider.com, UBS downgraded Deere to Neutral from Buy. The firm cites the historically high correlation between Deere's share prices and corn prices, which have declined significantly in recent months.

Technical Review

Deere's shares have had a volatile 2013 thus far, trading in a 13 point range between $82 and $95. Recent price action has been positive, with the stock digesting Caterpillar's negative earnings release well, rallying over 10%. The RSI is approaching an overbought reading, which could indicate there is limited near-term upside. If earnings surprise positively, look for initial resistance at the recent highs near $95.60, followed by $100. If earnings disappoint, look for support near $88, with stronger support near $86. (Chart courtesy of StockCharts.com)

Summary

Deere & Co. has traded higher in the past month thanks in part to Caterpillar's positive reaction to earnings below consensus estimates, a strong bid for the overall market, and very recent stabilization of corn prices. Given this backdrop, Deere's shares should be viewed neutrally going into earnings. Look for any changes in net income guidance or equipment sales guidance for the FY2013, along with EPS and revenues for an actionable trading signal.

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Source: Deere & Co. Earnings Preview 2Q 2013