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Bull of the Day: Deere & Company (DE)


Last week’s tech selloff underscored the fact that some investors are starting to focus on other areas after the sector’s years-long rally. Luckily, there is plenty of strength in other core areas of the economy, including agriculture and industrials, and investors searching for a great pick in these segments should look no further than Deere & Company (DE).

Through its John Deere brand, Deere & Company is a leading manufacturer of agricultural, construction, and forestry machinery. The company was founded in 1837 and is one of the most historic American corporations around, but management’s commitment to investment and innovation has kept it on the cutting edge through the years.

Deere & Company has outperformed its industry peers over the past year, and another strong quarter has sent the stock soaring to a new 52-week high. Positive estimate revisions have been pouring in, and DE is currently sporting a Zacks Rank #1 (Strong Buy).

Latest Earnings Report

Deere reported its fourth-quarter fiscal 2017 results on Nov. 22. The company posted earnings of $1.57 per share, beating the Zacks Consensus Estimate of $1.46 and surging about 74% year-over-year. Total equipment revenues of $7.09 billion were up 26% from the year-ago period and ahead of our consensus estimate of $6.91 billion.

Including financial services, total net sales came in at $8.02 billion, which marked year-over-year growth of 23%. Geographically speaking, Deere witnessed sales growth of 23% in the United States and Canada, while sales in the rest of the world climbed 30%. Looking ahead, this international growth should continue to be aided by a recovery in the dairy and livestock markets throughout Europe.

Segment wise, revenues in the Agriculture & Turf unit were up 22% to $5.44 billion. Operating profit at this segment climbed 57% year-over-year to reach $584 million. Construction & Forestry sales were up about 37% to $1.66 billion. This unit contributed about $85 million to Deere’s total operating profit, an improvement from the $17 million loss reported in the year-ago period.

Perhaps most impressively, Deere reported cash and cash equivalents of $9.33 billion at the end of fiscal 2017, up about 115% from the $4.34 billion held at the end of fiscal 2016. The company will spend about $5 billion in cash to acquire Wirten Group in a deal that is expected to close this month.

Wirtgen is expected to add about 12% to Deere's sales for fiscal 2018 and about 6% for the fiscal first quarter. After accounting for acquisition costs, Wirtgen is expected to contribute about $75 million in operating profit and $25 million in net income in fiscal 2018.

Estimate Revisions and Key Stats

As we can see, Deere’s strong quarter has inspired a plethora of positive earnings estimate revisions. The key here is that we are seeing 100% agreement among the analysts that are revising their estimates. These analysts are in agreement with the company’s upbeat guidance, and we now expect Deere to have another remarkable fiscal year in 2018.

Furthermore, we see some evidence that Deere is currently undervalued, even as its shares sit near their 52-week high. The company’s P/E ratio is just 18.97, which compares favorably to its industry’s average, as well as the average of the S&P 500. What’s more, a P/S ratio of 1.62 is respectable, and the company is generating a staggering $12.06 in cash per share right now.

Deere’s 1.60% dividend is not spectacular, but income-loving investors will welcome it. Finally, the stock is sporting an “A” grade for Momentum and could be an interesting pick for momentum investors that love to see stocks surging into new highs.

Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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