Bellwether Stock Rises In Buy Range With Earnings Set To Vault

Supply-chain issues have weighed on Deere earnings. Robust demand is driving revenue growth. DE stock rose in buy range Tuesday.

Deere (DE) tees up to report earnings for its fiscal fourth quarter early Wednesday, with supply-chain issues in the spotlight. DE stock rose in buy range Tuesday.


Outlook for 2023 will be key. The big question is the state of supply recovery. The farm and construction equipment maker sold out of large tractors in Q3 due to parts shortages.

Deere, an economic bellwether has benefited from equipment prices forced to record highs by those shortages, as well as by higher crop prices. Those benefits have been offset by economic uncertainty and inflationary pressures, as well as supply disruptions.

In addition, both Deere and Caterpillar (CAT) should benefit from U.S. infrastructure spending. DE stock earns a spot on the prestigious IBD Leaderboard list.

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Deere Earnings

Estimates: Analysts polled by FactSet expect Deere earnings for the October quarter to vault 73% to $7.11 per share. That would also be a sharp acceleration from a 15.8% gain in the July quarter. Total revenue is seen jumping 27% to $14.4 billion, marking the third straight quarter of accelerating sales.

Results: Check back Wednesday before the market open.

Outlook: For fiscal 2023, analysts see DE earnings rising 13.5% to $25.92 a share.

In August, Deere lowered its full-year profit outlook and said it is “working closely with our factories and suppliers to meet higher levels of customer demand.” At the same time, CEO John May said, “We believe favorable conditions will continue into 2023 based on the strong response we have experienced to early-order programs.”

DE Stock

Shares of Deere rose 1.2% to 416.70 on the stock market today, well above a rising 50-day moving average.

DE stock broke past a 406.12 cup-with-handle buy point on Nov. 8. It is currently within the 5% chase zone, which stretches to 426.43, Leaderboard chart analysis shows.

The relative strength line for DE stock hit a new high ahead of the breakout after surging over the summer.

DE stock screens very well in terms of key IBD ratings. As of Nov. 22, it earns a perfect Composite Rating of 99. It also bears an EPS Rating of 94 and RS Rating of 92, both out of a best-possible 99.

CAT stock rose 2.5% Tuesday, closing less than 1% below a 237.90 entry. In late October, Caterpillar crushed Q3 earnings estimates, and revenue also beat.

Among other ag stocks to watch are grain processor Archer-Daniels-Midland (ADM), fertilizer producer CF Industries (CF) and Lindsay (LNN), a producer of irrigation equipment that is also taking up a role in the green hydrogen infrastructure space.

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Deere Tractors Face Parts Shortages

Tractor maker Deere grew revenue 22% in the July quarter, driven by strength in prices and demand for large farm equipment. But shortages of chips and other parts led to partially built machines, awaiting parts for workers to complete assembly.

Profitability was pressured by supply-chain challenges, which drove significant production inefficiencies,” Edward Jones analyst Matt Arnold wrote in a note this summer.

Those inefficiencies are expected to abate as supply chains normalize. “Demand for Deere’s products remains very robust, and we expect the favorable demand environment to remain, given high grain prices and rising infrastructure spending,” Arnold added.

An aging farm machinery fleet is driving up replacement demand. Deere also makes excavators, back hoes, dump trucks and wheel loaders for the construction market.

Arnold rates DE stock a buy.


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In addition, both Deere and Caterpillar (CAT) should benefit from U.S. infrastructure spending. DE stock earns a spot on the prestigious IBD Leaderboard list.


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