Deere Stock Raises Outlook and is Ready to Power Higher

Key Points

• Deere stock gapped up in early morning trading after the company had an impressive beat on earnings and raised its full-year earnings guidance. 
• The results show that Deere’s customers are willing to pay the higher prices for heavy equipment even in the face of higher costs. 
• DE stock could be a low-risk play on artificial intelligence.  
• The stock is closing in on its 100-day simple moving average, which could set it up to reach a new 52-week high.   

Deere & Co. NYSE: DE stock is up approximately 4% in early trading after the company’s fourth-quarter earnings report. The heavy equipment manufacturer beat on both the top and bottom lines. The report highlights Deere’s ability to pass along at least some of its higher prices to farmers and other customers who are already beset by higher costs.  

The company also raised its full-year earnings guidance for 2023. The updated forecast of between $8.75 billion and $9.25 billion is $750 million higher than the midpoint of the guidance it provided in the previous quarter.  

The sharp move is welcome news to shareholders. Prior to the move, DE stock was down 6% for the year as investors were concerned about the effects of rising interest rates and inflation on the company’s earnings. That loss nearly exactly correlated with the 7% loss in the S&P 500 so far in 2023. The next question is how high can DE stock go?

Delivering on What They Said 

Deere reported top-line revenue of $11.4 billion which beat analysts’ expectations for $11.3 billion. But it was the bottom line that stood out. The company posted $6.55 earnings per share compared to the $5.57 that the street was expecting.  

The earnings number looks even better when compared to the $2.92 Deere recorded in the same quarter in 2022. And it confirms what management forecast in their prior earnings report. But that didn’t matter to investors who sold DE stock.  

Some of the selling may have come from investors taking profit off the table, and some may have been investors taking a more risk-on approach to equities in the first month of the year.  

Both work in favor of DE stock moving higher in the short term. With the company continuing to deliver strong revenue and profit in the face of inflation, Deere is a good reminder of what many investors should be looking for. That is, a company that has products that are in demand and that its customers will continue to buy. And that story will likely remain in place as more of the money from the Infrastructure Act works its way into the economy.  

A Low-Risk Investment in AI? 

One of the risk-on sectors that is attracting investors like a moth to a flame is artificial intelligence. There are several pure-play companies for speculative investors. But if that’s not your thing, Deere can give you exposure to the sector with less risk.  

About a year ago, Deere debuted its fully autonomous tractor at the Consumer Electronics Show (CES) in Las Vegas. Although demand for semiconductor chips may continue to weigh on production, this will likely be a long-term catalyst for the company.  

Will DE Stock Make a New 52-Week High? 

Deere stock hit its 52-week high of $448.40 in December 2022. If the stock returns to that level, it would be within striking distance of the analysts’ target price of around $459 per share. Let’s take first things first. The current bounce reversed the gap that happened on February 16. The next step is for the stock to overtake the 50-day moving average of around $424. After that the stock would have to climb another 5% to retake the 52-week high.  

That seems a little ambitious with sentiment turning in favor of the bears. But Deere is trading at around 17x earnings, which is slightly below the P/E ratio of the S&P 500, which is around 21x. Plus, the company pays a respectable dividend that may reward long-term investors.