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Deere (DE) Up 27% in 6 Months: What's Driving the Rally?
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Deere & Company’s (DE - Free Report) shares have gained 27.2% in the past six months compared with the industry’s growth of 24.6%. This price appreciation can be attributed to higher agricultural commodity prices, which are fueling the demand for agricultural equipment. Improvement in the construction and forestry sector and investments in precision agriculture are contributing to this price rally.
Deere’s shares have gained 13.3% since the company reported first-quarter fiscal 2022 earnings on Feb 18. Earnings and sales surpassed the respective Zacks Consensus Estimates. Apart from this, the company’s share prices have been rising since the start of Russia's invasion of Europe.
Image Source: Zacks Investment Research
DE has a trailing four quarters earnings surprise of 20.5%, on average.
Let’s delve deeper and analyze the factors driving the stock.
Driving Factors
Deere is gaining from higher agricultural commodity prices amid supply concerns over the conflict between Russia and Ukraine. The war between the world’s largest grain exporters has stoked worries of the impending disruption of grain exports. Prices for corn and soybean, the most important grains for cash crop farming, are moving higher. An increase in commodity prices will drive farm income and encourage farmers to continue spending on agricultural equipment. This will drive Deere's top line in fiscal 2022.
Total crop cash receipts in the United States will likely be up 5.1% year over year in calendar 2022 on higher commodity prices. The U.S customer sentiment has moved up over the last few quarters with elevated exports to China. Considering these factors, Deere projects fiscal 2022 net income in the band of $6.7-$7.1 billion, suggesting an increase from $5.96 billion in fiscal 2021.
Positive fundamentals, including favorable crop prices, economic growth and increased infrastructure spending in fiscal 2022, will continue to drive farm and construction equipment demand. For the Agriculture & Turf segment, Deere expects industry sales of large agricultural equipment in the United States and Canada to be up roughly 20% for fiscal 2022. Small agricultural and turf equipment are expected to be up 15%. In Europe, industry sales are projected to be up 5% as higher commodity prices favor business conditions in the arable segment and dairy prices remain resilient. In South America, tractors and combined industry sales are likely to go up 5-10%.
Net sales for Deere’s Production and Precision Agriculture segment are anticipated to be up 25-30% for fiscal 2022. The company is also witnessing improvement in the Construction & Forestry segment, with sales projected to be up 10-15% for fiscal 2022. Earthmoving and compact equipment end markets are expected to remain strong for the fiscal year, owing to continued strength in the housing market, increased activity in the oil and gas sector and strong capex programs from the independent rental companies. Forestry equipment sales are expected to be up 10% to 15% as lumber demand remains robust. Sales in the Construction & Forestry segment are projected to be up 10-15% for fiscal 2022.
Deere is well poised for growth in the long term, backed by steady investments in new products and regions. Focus on launching innovative products equipped with advanced technologies and features as well as making investments in precision agriculture provides a competitive edge. DE is seeing strong demand from its new product launches like ExactRate planter applied fertilizer systems and AutoPath. The company envisions revolutionizing agriculture with technology and making farming automated, easy to use and more precise across the production process. Farmers’ growing reliance on advanced technology to run their complex operations smoothly will continue to fuel the company’s revenues.
Positive Growth Projection
The Zacks Consensus Estimate for fiscal 2022 earnings is currently pegged at $22.76, suggesting year-over-year growth of 19.8%. The estimate has been revised upward by 2.5% in the past 60 days.
Some other top-ranked stocks in the Industrial Products sector are Greif Inc. (GEF - Free Report) , Packaging Corporation of America (PKG - Free Report) and Sonoco Products Company (SON - Free Report) , each carry a Zacks Rank #2, at present.
Greif has an estimated earnings growth rate of around 16% for fiscal 2022. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 4.2%.
GEF pulled off a trailing four-quarter earnings surprise of 14.7%, on average.
Packaging Corp has an expected earnings growth rate of 12.6% for 2022. The Zacks Consensus Estimate for the current year’s earnings has moved up 9.5% in the past 60 days.
PKG has a trailing four-quarter earnings surprise of 22.7%, on average. PKG’s shares have gained 9.9% in the past six months.
Sonoco has a projected earnings growth rate of 39.7% for the current year. The Zacks Consensus Estimate for 2022 earnings has moved north by 6.9% in the past 60 days.
SON delivered a trailing four-quarter earnings surprise of 1.74%, on average. Sonoco has moved up 4.1% in the past six months.
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Deere (DE) Up 27% in 6 Months: What's Driving the Rally?
Deere & Company’s (DE - Free Report) shares have gained 27.2% in the past six months compared with the industry’s growth of 24.6%. This price appreciation can be attributed to higher agricultural commodity prices, which are fueling the demand for agricultural equipment. Improvement in the construction and forestry sector and investments in precision agriculture are contributing to this price rally.
Deere’s shares have gained 13.3% since the company reported first-quarter fiscal 2022 earnings on Feb 18. Earnings and sales surpassed the respective Zacks Consensus Estimates. Apart from this, the company’s share prices have been rising since the start of Russia's invasion of Europe.
Image Source: Zacks Investment Research
DE has a trailing four quarters earnings surprise of 20.5%, on average.
Let’s delve deeper and analyze the factors driving the stock.
Driving Factors
Deere is gaining from higher agricultural commodity prices amid supply concerns over the conflict between Russia and Ukraine. The war between the world’s largest grain exporters has stoked worries of the impending disruption of grain exports. Prices for corn and soybean, the most important grains for cash crop farming, are moving higher. An increase in commodity prices will drive farm income and encourage farmers to continue spending on agricultural equipment. This will drive Deere's top line in fiscal 2022.
Total crop cash receipts in the United States will likely be up 5.1% year over year in calendar 2022 on higher commodity prices. The U.S customer sentiment has moved up over the last few quarters with elevated exports to China. Considering these factors, Deere projects fiscal 2022 net income in the band of $6.7-$7.1 billion, suggesting an increase from $5.96 billion in fiscal 2021.
Positive fundamentals, including favorable crop prices, economic growth and increased infrastructure spending in fiscal 2022, will continue to drive farm and construction equipment demand. For the Agriculture & Turf segment, Deere expects industry sales of large agricultural equipment in the United States and Canada to be up roughly 20% for fiscal 2022. Small agricultural and turf equipment are expected to be up 15%. In Europe, industry sales are projected to be up 5% as higher commodity prices favor business conditions in the arable segment and dairy prices remain resilient. In South America, tractors and combined industry sales are likely to go up 5-10%.
Net sales for Deere’s Production and Precision Agriculture segment are anticipated to be up 25-30% for fiscal 2022. The company is also witnessing improvement in the Construction & Forestry segment, with sales projected to be up 10-15% for fiscal 2022. Earthmoving and compact equipment end markets are expected to remain strong for the fiscal year, owing to continued strength in the housing market, increased activity in the oil and gas sector and strong capex programs from the independent rental companies. Forestry equipment sales are expected to be up 10% to 15% as lumber demand remains robust. Sales in the Construction & Forestry segment are projected to be up 10-15% for fiscal 2022.
Deere is well poised for growth in the long term, backed by steady investments in new products and regions. Focus on launching innovative products equipped with advanced technologies and features as well as making investments in precision agriculture provides a competitive edge. DE is seeing strong demand from its new product launches like ExactRate planter applied fertilizer systems and AutoPath. The company envisions revolutionizing agriculture with technology and making farming automated, easy to use and more precise across the production process. Farmers’ growing reliance on advanced technology to run their complex operations smoothly will continue to fuel the company’s revenues.
Positive Growth Projection
The Zacks Consensus Estimate for fiscal 2022 earnings is currently pegged at $22.76, suggesting year-over-year growth of 19.8%. The estimate has been revised upward by 2.5% in the past 60 days.
Zacks Rank and Other Stocks to Consider
Deere currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some other top-ranked stocks in the Industrial Products sector are Greif Inc. (GEF - Free Report) , Packaging Corporation of America (PKG - Free Report) and Sonoco Products Company (SON - Free Report) , each carry a Zacks Rank #2, at present.
Greif has an estimated earnings growth rate of around 16% for fiscal 2022. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 4.2%.
GEF pulled off a trailing four-quarter earnings surprise of 14.7%, on average.
Packaging Corp has an expected earnings growth rate of 12.6% for 2022. The Zacks Consensus Estimate for the current year’s earnings has moved up 9.5% in the past 60 days.
PKG has a trailing four-quarter earnings surprise of 22.7%, on average. PKG’s shares have gained 9.9% in the past six months.
Sonoco has a projected earnings growth rate of 39.7% for the current year. The Zacks Consensus Estimate for 2022 earnings has moved north by 6.9% in the past 60 days.
SON delivered a trailing four-quarter earnings surprise of 1.74%, on average. Sonoco has moved up 4.1% in the past six months.