Should I invest in Deere & Company shares after better than expected second-quarter results?

By: Stanko Iliev
Stanko Iliev
Stanko dedicates himself to providing investors with relevant information they can use to make investment decisions. He loves the… read more.
on May 30, 2021
  • Deere & Company reported better than expected second fiscal quarter results this month
  • The company's business has proven improvements throughout the second fiscal quarter
  • Deere raised its outlook for the fiscal 2021 year across its major business segments

Deere & Company (NYSE: DE) manufactures various equipment worldwide and operates through three segments: agriculture and turf, construction and forestry, and financial services. Deere shares have been moving in an uptrend last several months, and the company’s business has proven stability throughout the Covid-19 pandemic.

Fundamental analysis: Deere demonstrated strong execution in the second quarter

Deere & Company reported better than expected second fiscal quarter results this month; total revenue has increased by 30.4% Y/Y to $12.06 billion, while the GAAP EPS was $5.68  (beats by $1.09). The company demonstrated strong execution in the second quarter and achieved significantly higher levels of profitability.

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Total revenue has increased above expectations (+1.5 billion), and the company raised its outlook for the fiscal 2021 year across its major business segments. Deere expects a net income of $5.3 billion to $5.7 billion for fiscal 2021, while the board of directors announced that the company is prepared for an accelerating inflationary environment.

“Fundamentals have improved significantly throughout the first half of the year, and the improved sentiment is reflected in the most recent status of our order books, which extend through the rest of the year and in some cases, into fiscal year ’22. Meanwhile, markets for our construction and forestry segment also strengthened in the second quarter, leading to improved levels of profitability and a heightened outlook for the rest of the year,” said Brent Norwood, manager of Deere & Company.

The board of directors declared a $0.90/quarterly share dividend which will be payable on August 09 to stockholders of record as of June 30, 2021. Jefferies analyst Stephen Volkmann said that updated forecast and strong pricing should support the shares, while research firm Volkmann also has a positive view for Deere shares.

The consensus Wall Street rating on Deere remains bullish, but probably it is not the best moment to invest in shares of this company. Deere trades at more than twenty times 2020 EBITDA, the book value per share is less than $50, and the current dividend yield is around 1%.

If we compare the total stockholders’ equity of $15.09 billion and the market capitalization of $112.64 billion, we can notice that this stock is not undervalued, and the current risk/reward ratio is not good enough for “value” investors.

Technical analysis: Bulls remain in control of the price action

Data source: tradingview.com

Deere shares remain supported after better than expected second fiscal quarter results, and according to technical analysis, there is no risk of the positive trend reversal for now.

Rising above $375 supports the continuation of the bullish trend, and the next price target could be located around $400. On the other side, if the price falls below $300, it would be a “sell” signal, and we have the open way to $250.

Summary

Deere shares have been moving in an uptrend last several months, and the company reported better than expected second fiscal quarter results this month. The company’s business has proven improvements throughout the second fiscal quarter, but shares of Deere are not undervalued, and the current risk/reward ratio is not good enough for “value” investors.

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