This Industrial Stock is Well-Positioned for 2023

The world’s largest manufacturer of agricultural equipment, Deere & Company (DE), beat analysts’ EPS and revenue estimates for the fiscal fourth quarter that ended October 30, 2022, despite the uncertain macroeconomic environment, higher raw material prices, and supply chain challenges.

DE’s EPS came 9% above the consensus EPS estimate, while its revenue surpassed the analyst estimates by 6.6%. The company’s Production & Precision Agriculture segment sales rose 59% year-over-year to $7.43 billion. Its operating margins came in at 23.4%, compared to 16.7% in the prior-year period.

Small Agriculture & Turf segment saw similar growth. Net sales rose 26% year-over-year to $3.54 billion, and its operating margin came in at 14.3%, compared to 12.3% in the year-ago period.

Its Construction & Forestry segment’s net sales witnessed a 20% year-over-year increase to $3.37 billion, with its operating profit rising 53% year-over-year to $414 million.

The company’s Financial Services segment’s net income rose 2% year-over-year to $232 million. Despite the challenges, DE’s strong pricing power was on display, as price realization was positive by about 19 percentage points which helped offset a three-point headwind from a higher U.S. dollar.

During a conference call with analysts, DE’s manager of investor communications, Rachel Bach, said, “Across our businesses, performance was driven by continued strong demand, higher production rates, and progress on reducing our inventory in partially completed machines.”

The Moline, Illinois-based company has provided strong guidance for 2023 based on its strong pricing, higher infrastructure spending, and healthy industry outlook. For 2023, its net income expectation is between $8 billion to $8.50 billion, which is 5% higher than consensus estimates.

DE’s Chairman and CEO, John C. May, said, “Deere is looking forward to another strong year in 2023 based on positive farm fundamentals and fleet dynamics as well as an increased investment in infrastructure.”

DE has gained 28.6% in price year-to-date and 26.7% over the past year to close the last trading session at $440.97. Credit Suisse analyst Jamie Cook has reiterated an outperform rating on the stock and has raised the target price from $447 to $582.

Despite the possibility of a recession, do you think DE will be able to meet its guidance in 2023?

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