John Deere tractors.
Justin Sullivan/Getty ImagesAgricultural equipment giant Deere reports earnings Friday morning. Management needs to raise guidance to keep the stock working higher—and to overcome peak-agricultural fears.
Deere stock (ticker: DE) has been on fire. Shares are up 34% year to date and 88% over the past 12 months. The S&P 500 is up 30% over the past 12 months. Even Tesla (TSLA)—up 69% over the past 12 months—is now trailing Deere.
Deere shares are down 3.2%, at $359.63, in recent trading. The S&P 500 is down 0.3%.
A healthy agricultural economy is a big reason for recent gains. Corn prices are up about 15% year to date. That’s good for farmers’ incomes and, therefore, good for Deere. But corn prices are down about 15% since the company reported its fiscal-second-quarter numbers in May. That could weigh on the outlook. Still, corn is trading at about $5.60 a bushel. In 2019, corn prices averaged about $3.80 a bushel.
So far in 2021, Deere has raised fiscal-year 2021 guidance after it reported both first- and second-quarter numbers. Deere’s fiscal year matches the U.S. harvest. The company is about to report is fiscal third quarter.
For the quarter coming Friday, analysts are looking for $4.58 a share from $10.3 billion in sales. For the fiscal second quarter, Deere reported $5.68 in per-share earnings from $11 billion in equipment sales. It was a huge earnings beat. Wall Street was looking for $10.3 billion in sales and $4.48 in per-share earnings.
“Following meaningful upside surprises over the past year and a half, we imagine that Street estimates are starting to close the gap with actual results,” writes BMO analyst Joel Tiss in a Thursday report. ” Nonetheless, most investors we speak with expect another solid [earnings] beat.”
Shares gained about 1.3% after Deere reported its strong fiscal-second-quarter numbers. Options markets imply the stock will move about 5%, up or down, after Friday’s earnings. Expectations for an elevated postearnings stock move indicate that investors aren’t sure what to expect.
Wall Street still has relatively high hopes for the stock. About 61% of analysts covering the stock rate shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. But analysts are a little less bullish than they have been in recent months. When Deere reported fiscal-second-quarter numbers, 75% of analysts rated shares Buy.
That’s a sign that some on the Street are worried this is as good as it gets for the agricultural economy. Management will have to convince analysts and investors things will stay strong on Friday.
Management hosts a conference call at 10 a.m. Eastern time on Friday for investors and analysts to discuss results.
Write to Al Root at allen.root@dowjones.com
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Deere Reports Earnings Friday. Is Peak Ag Here? - Barron's
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