Deere and Company Has Weak Quarterly Earnings

Deere & Company (Ticker Symbol: DE), the owner of the John Deere brand, reported earnings that fell short of the street’s expectations.  The equipment company reported an earnings per share miss of $2.71 per share vs. Wall Street analysts’ expectations of $2.85 per share.  

Additionally, the Moline, Ill-based company released a revenue miss, reporting revenue of $8.97 billion vs. Wall Street analysts’ expectations of $9.39 billion. The company cited that the weaker earnings were partly because farmers are delaying purchases due to uncertainty with the trade war, which has a large effect on the price of agricultural commodities.   

Deere lowered guidance again for the second consecutive quarter.  The company is now saying that it expects a 4% increase in sales and $3.2 billion in net income for the year vs. the prior 5% increase in sales and a net income of $3.3 billion. Overall, equipment sales for the quarter dropped by 3%, which was led by a decline in the agriculture and turf arms, which saw sales decline 6%.  

Above is a longer-term weekly chart of the past twelve years of Deere’s stock price.  The stock spent the years from 2008-2016 forming an eight-year-long ascending triangle pattern.  

Ascending triangles are triangles that are consolidation patterns and are usually bullish. The top part of the triangle appears flat and the bottom part of the triangle has an upward slant. Buyers come in at the lows and prices move higher.  Prices make a higher low and prices retest the old highs and fail. If in an uptrend, buyers usually win the battle, and the stock usually breaks in the direction of the trend as in Deere’s case. 

Some traders use what’s called a “measured move” to try and project where the stock might go in the future based on breakouts from technical formations.  In Deere’s case, one would take the difference between the widest part of the triangle, the bottom prices from the bottom of the pattern (roughly $30.00), the price of the flat top part of the triangle (roughly $100.00), and then subtract them to get the difference ($70.00). The difference is then projected from the breakout point in the direction of the breakout to project the price of the measured move: Breakout point + Difference = Measured Move.​ 

​In Deer’s case, the projected price target from the ascending triangle pattern was roughly $170.00, which it achieved roughly a year after breaking out from that pattern.  The stock rallied over 70% before trading to an all-time high on February 12th at $75.26. Since 2018, the stock has been in a trading range between the $130.00 and $170.00 price levels and is currently just over 6% away from its all-time high.   

(Chart above courtesy of ​www.tipranks.com​)  

Based on a survey of 14 analysts offering 12-month price targets, the average price target for Deere’s stock is $166.71. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $164.40.

The trade war that has been going on between the US and China has been putting pressure on Deere, not only from an agricultural standpoint but also from its production costs because the company is sensitive to steel prices.  Trump stated after the bell on Thursday that he would consider an interim trade deal with China, but nothing has been set in stone just yet.  

Investors in the industrial and agricultural equipment space should look to competitor Caterpillar’s earnings release on October 23rd for fresh news within the sector.   


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