Deere Stock Price Forecast August 2021 – Time to Buy DE?
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Deere stock opened higher in early US price action today but soon turned negative for the day. The company reported its quarterly earnings today which were ahead of estimates. The stock is up over 36% so far in the year and is outperforming the S&P 500. What’s the forecast for DE stock and is it a good time to buy?
Deere produces equipment for several industries including agriculture, forestry, construction, and gardens. The company also produces engines and drivetrains and also provides rental sales.
Deere earnings beat estimates
Deere reported total revenues of $11.52 billion in the fiscal third quarter that ended on 1 August. The revenues increased 29% as compared to the corresponding period last year. In the first nine months of the fiscal year, the company’s revenues increased 27% YoY.
Looking at the revenue breakup, production and precision agricultural net sales increased 29% to $4.25 billion in the quarter and was the biggest contributor to the topline. The sales of small agricultural equipment rose 30% to $3.1 billion. Construction and forestry sales increased 32% to $3 billion. Overall, the company’s top line was ahead of what analysts were expecting. Also, its EPS was $5.32 in the quarter which was ahead of the $4.58 that analysts were expecting.
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DE raised guidance
DE also raised its guidance after the strong fiscal third-quarter performance and now expects net income to be between $5.7-$5.9 billion in the year. “Looking ahead, we expect demand for farm and construction equipment to continue benefiting from favorable fundamentals,” said CEO John C May. He added, “We are, at the same time, excited by the growing engagement with our digital platform, the John Deere Operations Center, as well as continued adoption of precision technologies, which unlock greater value for our customers.”
Notably, the agriculture market has been strong. There has been a rise in most commodity prices, and agricultural commodities have also rebounded. This has led to a favorable macro environment for companies like Deere. DE is among the best ways to play the agriculture industry as the company has high exposure to the market.
Deere stock forecast
According to the data from TipRanks, of the ten analysts covering Deere stock, seven have a buy rating while two have a sell rating. One analyst has given it a sell rating. DE has an average target price of $422.22 which is a premium of over 20%. The street high target price for DE is $450 while its lowest target price is $346.
In May, Jefferies had lifted Deere’s target price to a street high of $450. In July, Credit Suisse had also raised the stock’s target price from $427 to 4437. However, Morgan Stanley lowered DE’s target price from $450 to $442.
DE stock long term forecast
Analysts expect Deere’s revenues to rise 10.7% in the fiscal year 2022. The company’s EBITDA is expected to jump 13% in the year. We are in a commodity supercycle which bodes well for companies like Deere. While higher prices for agricultural goods have led to higher food inflation, it is also fuelling a capex cycle which would lead to higher demand for DE products.
“There are pretty elevated grain prices around the world, and thanks to that, farmers are increasingly confident in investing in their businesses,” said Matt Arnold, an analyst at Edward Jones & Co. while speaking with Bloomberg. He added, “They’re doing a really good job of translating that into a big expansion in earnings regardless of rising input costs and supply chain pressures.”
Deere stock valuation
DE stock trades at an NTM (next-12 months) PE multiple of 18.5x. The multiples have averaged 18.7x over the last five years. The stock’s current valuation multiples are in line with historical averages even as broader market valuations are running above the long-term averages. Also, Deere stock can command a valuation premium over the longer-term averages amid the current upcycle in farm spending.
DE stock technical analysis
DE stock has fallen below its 50-day SMA (simple moving average). It was a strong support channel for the stock but it failed to hold on above the 50-day SMA. The stock also trades below the 100-day SMA but is above the 200-day SMA. The 14-day RSI (relative strength index) of 41 is a neutral indicator and indicates neither overbought nor oversold positions.
That said, if you are looking for an investment vehicle to play higher prices for farm goods and the resultant uptrend in farmer spending on agricultural goods, DE stock looks like a good bet. The stock could see better days over the next couple of years and the dip today looks like a good buying opportunity to buy Deere for the long term.
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