John Deere Stock is Dropping Due to Lousy Timing, Not Lousy Earnings

Sometimes a great earnings report just isn’t good enough 

Timing frequently plays a role in the way investors react to a company’s earnings report. That looks like the case with John Deere (NYSE: DE). The stock is down over 2% in mid-day trading despite posting a beat on the top and bottom lines on February 18. Revenue of $9.57 billion rose 5% from the $9.11 billion Deere posted in the prior year. And on the bottom line, earnings per share (EPS) of $2.92 beat expectations for $2.26 per share  

With that said, investors don’t need much of a reason to sell. Deere’s earnings were down sharply from the $3.87 EPS the company posted in the prior year. And that is likely the culprit in sending the stock lower. 

Prior to the sell-off, DE stock appeared to be breaking above the top of the range it had been trading in for all of 2021. In fact, the stock was up 15% and at an all-time high on February 9, just over a week ahead of the earnings report.  

With no bad news from the company, this seems like a case of momentum selling as investors head into the long Presidents day weekend.  

Still a Strong Value Stock 

John Deere was a stock that was seen as being part of the flight to value. Rising commodity prices are expected to incentivize farmers to invest in equipment. That was a fact which the company confirmed on its earnings call.  

The company is also expected to benefit from a strong housing market. And the company is projecting net sales in its Construction and Forestry vertical to climb by 10% to 15% with operating margins rising from 13.5% to 14.5%. 

And the earnings report was more of the same across the company’s other verticals. That led to the company raising its full-year outlook for net income to a range between $6.7 billion and $7.1 billion. The prior range was $6.5 to $7 billion.  

Buy the Steak Not the Sizzle 

There’s plenty to like in the company’s earnings report. But we all love our gadgets. And some investors fell in love with John Deere’s debut of a fully autonomous tractor at the Consumer Electronics Show (CES) in Las Vegas.  

There’s little doubt that a self-driving tractor will likely offer benefits to farmers in terms of crop yield and overall efficiency. But this is a product that won’t be on the market until the end of this year at the earliest. John Deere acknowledges that the chip shortage is likely to last through 2022 which could delay production. And even the company believes this will be a long-term growth driver.  

The company also has many initiatives underway that will increase its product circularity and reduce its environmental footprint. In fact, the company projects these initiatives will result in over 150 billion in revenue by 2026.  

However, I’ll simply point out that these are long-term initiatives that shouldn’t detract from the fact that the company is delivering strong earnings and revenue today.  

Look to Buy DE Stock at an Opportune Price 

Don't fight the tape is always good advice for investors. Deere stock may have further to fall as investors attempt to wring any excess value out of stocks. Now isn’t the time to get reckless. 

However, with multiple catalysts still in place, the dip in Deere stock seems like a case of “not now” rather than “not going to happen.” 

Therefore, without further evidence to the contrary, long-term value-minded investors should look at this sell-off as an opportunity to buy DE stock before it takes the next leg up.