Is Deere & Company About To Run Higher?

Deere & Company Exit Uncertain Times 

After several quarters of range-bound trading and market uncertainty, it looks like shares of Deere & Company NYSE: DE are about to run higher. Not only has the company exceeded its fiscal 2021 expectations but a major strike has been resolved and the guidance for next year is very favorable. In our view, Deere & Company is not a high-yielding dividend growth stock but it is a very safe dividend-growth stock in a must-own industry for 2022. In terms of sector revenue and earnings growth, the Industrial sector is expected to post the second strongest performance in 2022 and Deere & Company is well-positioned to outperform. 

Deere & Company Beats And Raises 

Deere & Company produced a stellar report despite the lingering impact of a major UAW strike earlier this year. The strike, calling for better wages and wage growth, came to an end about a month ago and points to several years of smooth operations discounting any external influences that may arise. Regardless, the company’s Q4 revenue of $11.38 billion is up 16.45 from last year, 31% from two years ago, and beat the consensus estimate by over 800 basis points. The gains were driven by double-digit strength in all operating categories with notable strength in Agriculture (up 23%), Equipment (up 18.7%), and Small Equipment/Turf (up 17%). 

More importantly, the company experienced significant margin expansion in all five operating categories as well. This resulted in a 69% increase in net income that helped drive strong results on the bottom line too. On the bottom line, the $4.12 in GAAP earnings is up 72% from last year and beat the Marketbeat.com consensus by $0.23. As for the year, the company’s full-year revenue and earnings also exceeded the analyst consensus estimates. 

Looking to next year, the company is expecting strength to continue and is guiding all segments to growth. The company is expecting net income to top $6.5 billion which equates to growth of 9.6% at the low end of the range and discounting any share repurchases over the course of the next year. This compares to an expected 16% EPS growth but the figures are not directly comparable. The salient point is that much of the revenue gains are going to be predicated on pricing increases that should enhance margins and earnings. 

"Looking ahead, we expect demand for farm and construction equipment to continue benefiting from positive fundamentals, including favorable crop prices, economic growth, and increased investment in infrastructure," May said. "At the same time, we anticipate supply-chain pressures will continue to pose challenges in our industries. We are working closely with our suppliers to address these issues and ensure that our customers can deliver essential food and infrastructure more profitably and sustainably."

The Technical Outlook: Range-Bound Deere & Company Moves Higher

Shares of Deere & Company have been range-bound for the last three quarters but there are two factors pointing to higher prices now. The first is the solid bottom put in at the $320 level, the second is the post-release price action. Price action is up nearly 3.0% in early action confirming support at the short-term moving average and an upward bias in prices. Resistance is at the $360 level, a move above there would be very bullish and take prices up to the top of the range near $400. A break above that level would bring targets near $480 into play.