John Deere (Ticker Symbol: DE) released its quarterly earnings report Friday morning before the opening bell. The manufacturing giant reported an earnings per share miss of $1.54 per share vs. Wall Street analysts’ expectations of $1.77 per share. Net income reported fell to $3.52 per share, missing Wall Street analysts’ expectations of $3.62 per share. However, net sales increased over 5% to $10.27 billion vs. analysts expectations of $10.17 billion. John Deere cut its full-year guidance, citing that the U.S. and Chinese trade conflict has been hurting agricultural prices and demand for its farming equipment.
The trade tensions between the U.S. and China, the two largest economies in the world, have been hurting Agricultural Prices. China bought over $24 billion worth of agricultural products from the U.S. in 2017. That number was drastically lower in 2018, as China moved most of its purchases to Brazilian grains and oil seeds due to the ongoing trade conflict. This is causing a huge supply glut in the U.S. and Soybean futures have ticked to their lowest levels in almost ten years. The depressed prices are hurting farming profits which, in return, is hurting sales of John Deere’s machinery.
John Deere’s stock has been an interesting story for the past three years. The stock spent the end of 2015 and the majority of 2016, trading in a range between the $100.00 and $70.00 dollar price levels. John Deere put in a rounded bottom formation over that period of time and found support at the $70.00 price level. A positive earnings release in the fourth quarter of 2016 sent the stock shooting higher through that trading range. John Deere proceeded to rally over 75%, led by positive earnings and President Trump’s corporate tax cuts. The stock found support in the third quarter of 2017, at its 200-day Moving Average, before continuing higher to trade to an all-time high on February 15th, 2018 at $175.26 cents.
Since then, John Deere has been stuck in a trading range. The stock found support around the $130.00 level throughout 2018 and resistance around the $170.00 level. During that time, John Deere put in a Double Top formation. Traders and investors sometimes look at Double Top patterns for a possible pause within the current trend which can, at times, lead to a reversal, as occurred in John Deere’s case. John Deere’s stock is currently trading 25% below the all-time high it made at the beginning of 2018.
Based on a survey of 6 analysts offering 12-month price targets, the average price target for John Deere’s stock is $167.60. 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 $136.40.
The U.S. and Chinese trade wars have clearly been affecting the performance of John Deere’s stock. Even Walmart announced Thursday that, due to higher tariffs on goods from China, they will have to increase their prices. With depressed grain prices and higher crude oil prices currently, it doesn’t seem like farmers will have as much buying power in the coming months. Investors in the space should turn to Caterpillar’s earnings on July 24th for more news within the sector.