John Deere & Company NYSE: DE will be one of the last companies to report earnings before the Thanksgiving holiday. The company’s fiscal fourth quarter numbers are expected to be lower both from the company’s prior quarter as well as compared to the company’s performance in the same quarter last year.
With that said, it’s hard to call Deere anything but one of the strongest performers in the market this year. The stock is up nearly 50% for the year and over 30% since its last earnings report. When I last took a look at Deere stock back in August, I was bullish on the company. But I hardly expected a 30% jump in the stock.
Analysts seem to agree and are suggesting that a pullback from the company’s record high stock price is warranted.
The Virus Remains a Significant Factor
Like many companies, John Deere has not been spared from the effects of the global pandemic brought on by the novel coronavirus. Industrial activity slowed down throughout the world which correlated to a hit in demand for the company’s construction and farming equipment. This was a fact sprinkled throughout the company’s most recent earnings call.
In the third quarter the company’s total revenues came in a $8.9 billion which was an 11% decline. Earnings were also down from the prior quarter, albeit at a slower rate than revenue.
And there’s little doubt that the return to stricter lockdown measures in many parts of the country will have an effect on the company’s forward guidance. To what extent will be one of the more important things to pay attention to when the company issues guidance for 2021.
Still a Strong Dividend Stock
Although Deere did cut back on its share repurchase program, the company has maintained its dividend as a priority. And although the company has not increased its dividend since 2018, there is no indication that investors should be concerned about a dividend cut anytime soon.
Some analysts will cite a conservative payout ratio and perhaps sluggish earnings growth as reasons to not get too excited about John Deere’s dividend. Those are fair points. However they always resonate more in strong economies. With a weaker economy, and one that may continue to be weak in the first part of 2021, Deere’s conservative payout ratio is a benefit as the company’s dividend is safe. And that’s something that value investors can literally take to the bank.
Deere Is About the Future of Farming
When I wrote about Deere in August, I was impressed with the steps the company had taken to turn itself from an equipment manufacturer to a company that was on the leading edge of agricultural technology. This is certainly a difficult time for the company to take full advantage of those services.
However, an investment in John Deere is one for the long term. Someone who invested in John Deere stock five years ago are sitting on an impressive 232% gain. It hasn’t been a straight linear shot, but the gain has been impressive nonetheless.
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