John Deere Stock: What You Need To Know Ahead of the Company’s Q2 Earnings Call
With the Biden administration focused on American infrastructure and job growth, and market activity in flux in the face of a new inflation, many investors are looking for new places to stash their cash.
One of the investments that have been looking like an attractive bet lately has been Deere & Co., the manufacturing company known for its agricultural equipment, such as tractors. The company’s stock, DE, even made the news attached to the divorce of Bill and Melinda Gates.
Cascade Investment, the investment company established by Bill Gates, recently transferred approximately 2.25 million shares to Melinda Gates, totaling around $851 million in worth. The transfer caught attention since it comprised a large chunk of the $3 billion or so that Melinda Gates is believed to have received to date.
Here’s a look at Deere ahead of its second-quarter earnings call, which is set for Friday, and what you need to know before investing in the company.
A Stable Foundation in Place
In the commercial farming sector, Deere benefits from the longtime strength of its brand, as well as a current wave of reorders that were anticipated but, until recently, weren’t guaranteed.
In the private sector, the company appears to be experiencing increased demand for compact tractors and turf equipment. Consumers are likely prioritizing home and lawn projects with the extra time at home they have during the coronavirus pandemic.
A Company Investing In Itself
Deere is gaining attention for multiple pivots forward — decisions that could expand the company’s consumer base and increase prices and margins. Many industry analysts like Deere’s commitment to modernizing agriculture — and the company has been working on several developments.
Smart Farming Solutions
Deere & Co. has been investing in smart farming solutions, such as technology that offers farmers real-time data points to use to make decisions about when to prepare soil, plant and nurture seeds, and harvest plants. Deere also purchased Harvest Profit, a software with a focus on farm profitability.
Drought Management Technology
The company has also been betting on precision agriculture — giving farmers the ability to manage drought risk using information from satellites. This not only helps protect farms against potential losses, but also carries the possibility of using drought-prone crops of land, such as grasslands and pasture.
Using these more precarious types of land for farming with the help of satellite guidance could increase yields, profits and equipment needs. That’s potentially good news for Deere and its investors.
In 2004, Deere & Co. entered into a partnership with NASA’s Jet Propulsion Laboratory with the goal of improving its self-driving tractors. Deere used NASA’s technology to advance the self-guidance ability of its tractors, but it continued to work on its own technology.
Although it now relies on its own system, Deere placed a strategic bet by partnering with NASA until it could reach full proficiency with self-driving tractors on its own.
New Lines of Revenue
As Deere adds smart farming technology to its equipment and overall product mix, both sales and profit margins are on the rise. Software sales are becoming a regular component of equipment sales, as well as a possible stand-alone order.
An Expanding Customer Base
Deere’s opportunity in international markets is perhaps stronger than at any point in its history. As U.S. farms test the ways in which predictive technology can reduce farm labor and minimize losses, agricultural professionals from all over the world are likely to seek the same opportunity.
Deere Stock: A Year of Swings
Deere & Co. has a one-year high of $400.34 and a one-year low of $138.76. That’s quite a swing, but over the last four quarters, the company has surprised investors with average quarterly earnings of 65.72%.
Deere’s senior vice president and CFO, Ryan Campbell, commented during a recent earnings call that the company’s underlying fundamentals have been improving since the last quarter, pointing to elevated commodity prices and increased market access.
Deere’s relative strength line, a measure that holds a stock’s performance up against the S&P 500, is currently approaching a new high. Analysts anticipate that the company’s profit could soar by 112% upon reporting its second-quarter earnings.
Is Deere Stock a Buy, Sell or Hold?
Deere stock has been on the receiving end of much analyst confidence in recent weeks, with an article published on Yahoo Finance reporting that the stock made its way into the portfolios of 54 hedge funds by the end of December 2020. Prior to that, the record was 51.
Zacks Investment Research currently notes that the stock is a buy but also notes that despite consistent performance over the past few quarters, bearish sentiment about the company’s earnings prospects is relatively new.
Investors Should Be Ready for Uncertainty as the Pandemic Winds Down
Although there are multiple factors influencing Deere’s performance and driving analysts toward high hopes for its second-quarter earnings, the company did enjoy the pandemic-era benefit of more interest in compact equipment as Americans made landscaping more of a priority during lockdown.
Even if Deere’s second-quarter earnings are everything that analysts hope they will be, it’s unclear whether or not the company can hold on to the profitability it saw during the pandemic.
Good To Know
Just a year or so ago, Deere stock fell more than 40% during the coronavirus pandemic. However, the company’s solid quarter-to-quarter performance, paired with anticipation that President Biden’s policy-making agenda would include a focus on infrastructure, appears to have offered Deere some shelter.
The company appears positioned for growth due to the infiltration of technology into its product lines and the likely appeal of technology to farmers in other parts of the world. However, investors will need to watch and see if Deere’s growth tactics are enough in the short term to meet those trajectories head-on at this moment.
Deere isn’t likely to go anywhere. The question is simply this: How soon can it get to where it’s going, and how much of the market’s confidence can it keep in the meantime?
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- The White House. 2021. "American Jobs Plan."
- NASA. 2018. "How NASA and John Deere Helped Tractors Drive Themselves."
- Zacks Investment Research. 2021. "Deere (DE) Earnings Expected to Grow: What to Know Ahead of Next Week's Release."
- Investor's Business Daily. 2021. "Deere Near Buy Point After 300% Run; ARK's Cathie Wood Owns It, Too."
- Zacks Investment Research. 2021. "Deere (DE) to Report Q2 Earnings: What's in the Cards?"
- The Motley Fool. 2021. "John Deere's Stock Just Hit an All-Time High: Here's How It Got There."
- Crain's Chicago Business. 2021. "How Illinois' own Deere & Co. figures in the Bill and Melinda Gates split."