Deere (DE) gave a strong outlook for 2023 early Wednesday after beating earnings and revenue estimates for its fourth quarter, despite supply headwinds. DE stock broke out of a buy zone.
Deere, an industry indicator, benefited from farm equipment prices constrained to record highs by parts shortages, as well as higher crop prices. These benefits were offset by economic uncertainty and inflationary pressures.
Additionally, Deere and caterpillar (CAT) expect to benefit from US infrastructure spending. DE stock earns a spot on the prestigious IBD Leaderboard list.
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Estimates: Analysts polled by FactSet had expected Deere’s earnings for the October quarter to rise 73% to $7.11 per share. Total revenue jumped 27% to $14.4 billion.
Results: Deere’s earnings jumped 81% to $7.44 per share, a sharp acceleration from the 16% gain in the quarter ended July. Revenue jumped 37% to $15.54 billion, the third quarter of accelerating sales growth.
Outlook: Deere expects net income of $8 billion to $8.5 billion for fiscal 2023, beating consensus and up from $7.13 billion in fiscal 2022. Analysts now expect that DE’s earnings per share will rise 11.4% to $25.92.
“Deere expects another strong year in 2023 based on positive agricultural fundamentals and fleet dynamics, as well as increased investment in infrastructure,” CEO John May said in the statement on Wednesday. Deere results.
Last summer, the agricultural and construction equipment maker was unable to complete large tractors due to a shortage of parts. But May said Wednesday that the strong fourth quarter and fiscal year 2022 results reflected “extraordinary efforts to overcome supply chain constraints, ramp up plant production and deliver products to our customers.”
Deere shares rose 5.1% to 437.73 in the stock market today.
DE stock surpassed a buy point of 406.12 cup with handle on Nov. 8. It is now extended, which means the stock is not in the buy range. The buy range extends up to 426.43, according to the analysis of the leaderboard.
The relative strength line for DE stocks hit a new high on Wednesday after surging over the summer.
DE stock stands out very well in terms of IBD key scores. It scores a perfect composite rating of 99. It also carries an EPS rating of 94 and an RS rating of 92, both out of a 99, the best possible.
CAT stock fell 0.1% on Wednesday. Shares briefly recovered to a pint buy of 238 on Wednesday. In late October, Caterpillar smashed third-quarter earnings estimates, and revenues also beat.
Other agricultural stocks to watch include grain processors Archer-Daniels-Midland (ADM), fertilizer producer CF Industries (CF) and Lindsay (LNN), an irrigation equipment producer that also plays a role in the green hydrogen infrastructure space.
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Deere tractors face parts shortages
Tractor maker Deere grew sales at a healthy pace, helped by strong machine prices and demand for large farm equipment. But shortages of chips and other parts have led to partially built machines left waiting for parts for workers to complete assembly.
Profitability has been pressured by supply chain challenges, leading to significant production inefficiencies,” Edward Jones analyst Matt Arnold wrote in a note this summer.
These inefficiencies should lessen as supply chains normalize. “Demand for Deere products remains very robust, and we expect the favorable demand environment to remain, given high grain prices and increased infrastructure spending,” Arnold added.
An aging fleet of farm machinery increases replacement demand. Deere also manufactures excavators, backhoes, dump trucks and wheel loaders for the construction market.
Arnold assesses which DE shares to buy.
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