Why Deere Is Set For Volatility Post Earnings

Feb.11.14 | About: Deere & (DE)

Deere and Co. (NYSE:DE) is set to report FQ1 2014 earnings before the market opens on Wednesday, February 12th. Deere and Co. is one of the largest agricultural equipment producers in the world, known for its iconic John Deere brand. Shares were up nearly 4% in December after the company announced an expansion of its share buyback program. However, the gains were largely erased in January as U.S. stocks sold off across the board. Last quarter John Deere beat profit expectations by roughly 12% and came up slightly short on revenue. This quarter investors are expecting another period of better than expected EPS from Deere, while also coming up just short of Wall Street's sales target.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.

(Click Here to see All Estimates for Deere)

The current Wall Street consensus expectation is for DE to report $1.51 EPS and $6.522B revenue, while the current Estimize.com consensus from Buy Side and Independent contributing analysts is $1.56 EPS and $6.513B revenue. This quarter the buy-side as represented by the Estimize.com community is expecting DE to beat the Wall Street consensus on EPS but miss the mark on revenue.

Throughout the previous 6 quarters the consensus from Estimize.com has been more accurate than Wall Street in forecasting DE's profit and revenue 4 times each. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a wider differential on EPS and a smaller differential on revenue compared to previous quarters.

This quarter analysts are expecting profit and revenue to be down compared to FQ1 last year. The distribution of estimates published by analysts on the Estimize.com platform range from $1.36 to $1.73 EPS and $5.870B to $6.790B in revenues. This quarter we're seeing a wider distribution of estimates on DE compared to recent quarters.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signaling less agreement in the market, which could mean greater volatility post earnings.

Throughout the quarter the EPS estimate from Wall Street increased from $1.41 to $1.51, while the Estimize EPS consensus fell from $1.64 to $1.56. Over the same time period Wall Street lowered its revenue expectation from $6.899B to $6.522B while the Estimize forecast also decreased from $6.582B to $6.513B. Timeliness is correlated with accuracy and at the end of the period we saw converging expectations from Wall Street and Estimize.

The analyst with the highest estimate confidence rating this quarter is arfang, who projects $1.73 EPS and $6.688B in revenue. In the Winter 2014 season arfang rated as the 524th best analyst and is ranked 213th overall among over 3,800 contributing analysts. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case arfang is making a bullish call expecting Deere to beat the Estimize community consensus on both EPS and revenue.

This quarter contributing analysts on the Estimize.com platform are expecting Deere to beat the Street on profit and come up just short on revenue like they did last quarter. When Deere announced quarterly earnings last period we saw a mixed reaction in the stock price. Deere didn't start pushing higher until the expansion of the share buyback program was announced in December. The range of estimates for Deere on Estimize.com is higher than its ever been before, and we could see volatility post earnings depending on exactly how Deere reports earnings Wednesday morning.