By: Craig Bowles
Deere & Company (NYSE:DE) is slated to report 2Q 2014 earnings before the opening bell on Wednesday, May 14th. The earnings release is expected at approximately 7:00 a.m. EST with a 10:00 a.m. webcast available through John Deere Investor Relations. The company represents farm and construction machinery on the S&P 500 Index. Late in the business cycle, the size and cyclical nature of the company increases in importance to the overall market and as an economic indicator.
Outliers & Strategy
- Adjusted Earnings Per Share: The current Street estimate is $2.47 with a range of $2.02-$2.73. (Source: Yahoo! Finance). The estimate was $2.65 three months ago. Deere has beaten estimates the last four quarters by as little as 4c and as much as 39c.
- Revenues: Analysts expect a decline of 6.0% y/y to $9.65 bln (range $9.24 bln to $9.99 bln).
- Equipment Sales: Company guidance is for down 6%. According to Zack's Investment Research, analyst estimates are for down 7.3% y/y to $9.514 bln.
- Net Income Guidance (FY2014): Current net income guidance for FY2014 of $3.3 bln.
- Equipment Sales Guidance (FY2014): Current guidance is for down 3%. Zack's has analyst consensus at down 4.2%.
- Deere's P/E on trailing earnings is 10 compared to a five-year average of 15.7 and the industry's 13.5. The dividend yield is 2.2% compared to a five-year average of 2.0% and the industry's average of 2.0%, so there's still some relative value in the stock.
- Insiders sold 232,521 shares the last six months, according to Yahoo! but that may be overstated. We don't see any buying and do see that the CEO sold 10.4% of his shares or 32,371 shares on April 2-3 and SVP Gilles sold 29.5% or 22,650 shares on April 4-8. Deere expanded their share buyback program by $8 Billion in December. Warren Buffett owns close to 4 mln shares.
- Consensus Ratings for Deere are 6 Sell Ratings, 10 Hold, and 3 Buy Ratings, according to AnalystRatings.net.
- Corn prices, which tend to correlate somewhat with Deere, steadily declined from the summer peak in 2012 through 2013 but picked up in 2014, using the Teucrium Corn Fund ETF (NYSEARCA:CORN). Deere's stock has been relatively flat during this period, so further strength in grain prices this summer could assist the stock in pushing through that $90's area of resistance.
- Deere is compared other farm and construction machinery companies with quarterly results possibly impacting Caterpillar (NYSE:CAT), Ingersoll-Rand (NYSE:IR), and CNH Industrial (NYSE:CNHI). Other sympathy plays include Joy Global (NYSE:JOY), Monsanto (NYSE:MON), Titan International (NYSE:TWI), Stoneridge Inc. (NYSE:SRI).
- Deere shares have a 1-day average price change on earnings over the past eight quarters of 3.61%. Options are pricing in an implied move of 2.74% on earnings.
- 05/05: Corn demand has flattened in recent years and acreage planted has slipped since 2012, so prices are more susceptible to disappointing growing conditions, according to the weekly corn review on FarmFutures.com.
- 04/10: ISI upgraded Deere to Neutral from Cautious and raised the price target from $83 to $95 despite citing a number of negatives which hopefully will be reversed with a sustainable crop rally, according to a post on Benzinga.com.
- 03/30: Deere is focused on high-growth economies such as Brazil, China, and India, according to a post on Fool.com.
Deere's stock has shown limited duration above $90 since approaching $100 in 2011. The current balance area is $92-$94. Upside potential is increased after being flat for multiple years. (Chart courtesy of StockCharts.com)
John Deere stock is trading near all-time highs despite a lack of enthusiasm by analysts, traders, and financial news networks. The company has beaten estimates the last four quarters by as little as 4c and as much as 39c but that may be less of an issue given a lack of positive sentiment. A slight beat on earnings, revenues and equipment sales with no equipment sales guidance shocker may be all the bulls are asking for. The bears see analysts are less optimistic than company guidance and recent large insider sales as confirmations. Recently, Deere earnings have surprised to the upside, the stock traded higher before the conference call, and then management talks down prospects. Possibly, that's reversed this time?
DISCLAIMER: By using this report, you acknowledge that Selerity, Inc. is in no way liable for losses or gains arising out of commentary, analysis, and or data in this report. Your investment decisions and recommendations are made entirely at your discretion. Selerity does not own securities in companies that they write about, is not an investment adviser, and the content contained herein is not an endorsement to buy or sell any securities. No content published as part of this report constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.