When it comes to a company's earnings, I always find it necessary to determine what needs to occur in order for that company to meet and/or exceed analysts' expectations. With that said, I wanted to take a closer look and share my thoughts on what needs to happen in order for Deere & Company (NYSE:DE) to deliver a fairly solid quarter when the company announces its results on August 13.
When it comes to the company's upcoming FQ3 earnings, there are a number of things potential investors should consider. For instance, analysts currently calling for DE to earn $2.21/share in terms of EPS (which is $0.39/share lower than what the company had reported during FQ2 2014, and $0.35/share higher than what the company had reported during the year-ago period) and $8.80 billion in terms of revenue when its latest earnings are released on August 13.
It should be noted that Deere & Company cut its full year sales forecast on May 14 and in doing so forced me to revise my initial outlook on the company's upcoming quarter. Although I'm staying fairly positive on its FQ3 performance, the company recently noted that farm income is expected to be lower than last year, even though a strong livestock market is supporting mid- and smaller-size tractors. Industry sales for agricultural machinery in the U.S. and Canada are expected to decline 5-10% this year.
With that said, and in order to meet and/or exceed its quarterly EPS estimates, I'd like to see a minimal decline in the company's FQ3 total net sales (as compared to FQ2's net sales of $9.24 billion), a minimal decline in the company's FQ3 operating profit (as compared to FQ2's operating profit of $1.59 billion) and lastly, a minimal decline in the company's FQ3 revenues (as compared to FQ2's revenues of $9.95 billion).
Recent Trends Could Get A Boost If Earnings Meet And/Or Exceed Estimates
On Monday, shares of DE, which currently possess a market cap of $31.71 billion, a forward P/E ratio of 11.48, and a PEG ratio of 1.19, settled at a price of $87.16/share. Based on a closing price of $87.16/share, shares of DE are trading 0.54% above their 20-day simple moving average, 2.00% below their 50-day simple moving average, and 0.38% below their 200-day simple moving average.
Although these numbers indicate both a short-term uptrend and a long-term downtrend for the stock (which generally translates into a buying mode for most near-term traders and a selling mode for many of its long-term investors), I strongly believe the company's trend behavior could reverse course if earnings estimates are met and/or exceeded when FQ3 earnings are announced on Wednesday.
For those of you who may be considering a position in Deere & Company, I'd continue to keep an eye on the company's sales over the next 12-18 months as revised forecasts have the potential to negatively impact both 2014 and 2015 full-year estimates in which analysts are calling for Deere & Company to earn $8.43/share and $7.57/share, respectively.
If the company can demonstrate only minimal declines in its total net sales, its revenues, and its operating profit when it reports earnings on August 13, I see no reason why analysts' expectations can't be met or even slightly exceeded.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.