What to look out for in Deere’s earning report

Agriculture and farming equipment maker Deere & Company (NYSE: DE) is scheduled to report fiscal third quarter results ahead of Friday’s market open. The stock is up around 12% since the start of 2020 as agriculture and farming aren’t directly correlated with the fate of the global economy.

But with the stock outperforming the broader S&P 500 index, investors should be made aware of what Street analysts are expecting in Friday's report.

The numbers

According to Barron’s, Wall Street analysts are modeling the company to earn $1.24 per share in the fiscal third quarter on revenue of $6.7 billion. This would represent a decline from the $2.71 per share it earned last year on revenue of $9 billion.

Baird analyst Mig Dobre said in a note that Deere should manage to report a beat in its Friday results and revised its outlook higher, Barron’s noted. The near-term bullish stance is based on dealer inventories “running lean” and this should support production into next year.

Other Street analysts aren’t nearly as bullish as Dobre who has a Buy rating and $216 price target. J.P. Morgan analyst Adulgan downgraded the stock in August and slapped a $160 price target, implying roughly $30 per share worth of downside from Thursday afternoon’s price action.

Stability in farming

Deere is often compared with large rival heavy equipment maker and Dow Jones component Caterpillar Inc. (NYSE: CAT) but two pros prefer stocking with Deere. Simpler Trading’s Danielle Shay said Thursday on CNBC’s “Trading Nation” that Caterpillar is much more exposed to global economic growth. By contrast, Deere has shown stability in its agriculture and farming segment. 

In fact, Deere was an unintended beneficiary of the COVID-19 pandemic as a lot more people took up gardening and invested in their new at-home hobby, she said.

The chart makes Deere a winner

Caterpillar’s stock is down by around 7% in 2020, making Deere the near-term winner, MKM Partners’ JC O’Hara also said on “Trading Nation”. But taking a big step back and comparing the two on a 10-year basis shows Deere has proven to be the superior longer-term investor.

Both stocks would move in “lockstep” but Deere’s stock started to pull away ahead of Caterpillar in late 2018, he said. The outperformance hasn’t stopped and chart investors should stick with Deere’s stock as it represents superior leadership and momentum.

“We want to be involved with charts that are breaking higher so that ultimately means we want to be long Deere ahead of the numbers tomorrow,” he said.