Deere (DE) has been one of the most searched stocks on Zacks.com lately. So, you might want to consider some of the facts that could shape the stock’s performance in the short term.
Over the past month, shares of this agricultural equipment maker have returned +10.7%, compared to the +6.7% change in the Zacks S&P 500 composite. During this period, the industry Zacks Manufacturing – Farm Equipment, which includes Deere, gained 7.3%. The key question now is: what could be the future direction of the title?
Although media reports or rumors of a material change in a company’s business outlook usually cause its stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately determine the buy and hold decision.
Revisions to earnings estimates
Rather than focusing on anything else, at Zacks we prioritize assessing change in a company’s earnings projection. Indeed, we believe that the fair value of its shares is determined by the present value of its future earnings streams.
We basically look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest trading trends. And if earnings estimates increase for a company, the fair value of its shares increases. A higher fair value than the current market price stimulates investors’ interest in buying the stock, causing its price to rise. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
Deere is expected to post earnings of $6.60 per share for the current quarter, representing a year-over-year change of +24.1%. Over the past 30 days, the Zacks consensus estimate has changed by -0.1%.
The current year earnings consensus estimate of $23.30 indicates a year-over-year change of +22.7%. This estimate has changed by -0.2% over the last 30 days.
For the next fiscal year, the consensus earnings estimate of $26.24 indicates a change of +12.6% from what Deere is expected to report a year ago. Over the past month, the estimate has changed by -1.9%.
With an impressive externally audited balance sheet, our proprietary stock rating tool – the Zacks Ranking – is a more conclusive indicator of a stock’s short-term price performance because it effectively harnesses the power of earnings estimate revisions. The magnitude of the recent change in the consensus estimate, plus three more factors related to earnings estimatesresulted in a Zacks Rank #3 (Hold) for Deere.
The chart below shows the evolution of the company’s consensus 12-month EPS estimate:
12 month EPS
Revenue Growth Forecasts
Although earnings growth is arguably the most superior indicator of a company’s financial health, nothing as such happens if a company is unable to increase revenue. After all, it is almost impossible for a company to increase its profits for an extended period of time without increasing its revenue. It is therefore important to know the potential revenue growth of a company.
In the case of Deere, the consensus sales estimate of $12.95 billion for the current quarter indicates a year-over-year change of +24.4%. Estimates of $47.73 billion and $53.88 billion for the current and next fiscal year indicate changes of +20.1% and +12.9%, respectively.
Latest reported results and history of surprises
Deere reported revenue of $12.03 billion last quarter, representing a year-over-year change of +9.4%. EPS of $6.81 for the same period versus $5.68 a year ago.
Compared to the Zacks consensus estimate of $13.44 billion, reported revenue is a surprise of -10.48%. Surprise EPS was +2.41%.
The company has exceeded consensus EPS estimates in each of the past four quarters. The company has exceeded consensus earnings estimates twice during this period.
No investment decision can be effective without considering the valuation of a stock. Whether a stock’s current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is a key determinant of its future price performance.
While comparing the current values of a company’s valuation multiples, such as the price-to-earnings (P/E) ratio, the price-to-sales (P/S) ratio, and the price-to-cash flow (P/CF) ratio , along with its own historical values help determine whether its stock is fairly valued, overvalued or undervalued, comparing the company against its peers on these metrics gives a good idea of the reasonableness of the stock price .
As part of the Zacks Style Scores system, the Zacks Value Style Score (which assesses both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on. ), which helps determine whether a stock is overvalued, correctly valued, or temporarily undervalued.
Deere is rated B on this front, indicating that it is trading at a discount to its peers. Click here to see the values of some of the rating metrics that led to this rating.
The facts discussed here and plenty of other information on Zacks.com might help determine whether or not it’s worth paying attention to the market buzz about Deere. However, its No. 3 Zacks ranking suggests it could perform in line with the broader market in the near term.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.