Stocks to Consider and Updates

Deere Reports Strong Results; Raises Guidance

Shares of agriculture and construction machinery provider Deere & Co. (NYSE: DE – $155.25) rose 5.75% in today’s trading after it reported net income of $1.208 billion for the second quarter compared with $808.5 million last year. However, not factoring in adjustments, net income per share came in at $3.14 compared to $2.49 a year ago, while the Street estimates were for $3.31. The Agriculture & Turf segment sales rose 2% for the quarter and 20% for the first six months due to higher shipment volumes and the favorable effects of currency translation. Construction and Forestry sales increased 84% for the second quarter and 73% for six months, with the effects of the Wirtgen acquisition adding 60% and 44% for the respective periods. 

       Company equipment sales are projected to increase by about 30% for fiscal 2018 and by about 35% for the third quarter compared with the same periods of 2017. The company revised up its full-year earnings estimate on stronger demand for its construction equipment. Fiscal 2018 earnings per shares view now stands as $9.50 on revenue of $374.9 billion vs. last year’s $6.50/share and $25.885 billion in revenue. The Moline, Illinois-based company also sees higher raw material and transportation costs ahead and is selectively raising price and looking at some cost control options.

       These shares are trading about 20% below the 2018 high price of $175.26, as China’s tariffs on agriculture commodities from the U.S. looms large. Should the policy be implemented, it is apt to temper farmers’ appetite for equipment replacement in Deere’s biggest market. Recent price action, however, adds to the long-term appeal of the top-quality issue and the 1.6% annual dividend yield increases its attraction.

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