Deere & Company DE is currently trading at a forward 12-month earnings multiple of 22.42X, at a 12% premium to the farm equipment manufacturing industry’s 20.0X. It is also higher than DE’s five-year median of 15.65X. DE has a Value Score of C.
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The DE stock also seems relatively expensive compared to other industry players such as AGCO Corporation AGCO, CNH Industrial CNH and Komatsu KMTUY, which are trading significantly lower at 15.34X, 13.54X and 9.15X, respectively.
DE Stock Price Performance Lags Industry & Sector
Deere shares gained 14.7% in the past three months, underperforming the industry’s 15.3% growth. DE has also lagged the broader Zacks Industrial Products sector’s 16.3% gain.
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Weak Demand Weighs on Deere’s FY24 Performance
Deere, the well-known manufacturer of iconic green and yellow agricultural equipment, witnessed year-over-year declines in both revenues and earnings in all of the quarters of fiscal 2024 (ended Oct. 31, 2024). The declines worsened as the year progressed, culminating in a 44.9% plunge in earnings during the fourth quarter, driven by a 32.8% decrease in equipment revenues.
The dismal performance was attributed to lower shipment volumes across all segments amid weak demand, somewhat mitigated by Deere’s pricing strategies. Also, the company noted there has been a growing preference among buyers for used machinery rather than new equipment.
Total Agricultural & Turf equipment sales were down 22% in fiscal 2024 with volumes down 23.9%. Farmer spending has been muted amid low commodity prices, persistent inflation and high interest rates.
DE’s Construction & Forestry segment saw a year-over-year decline of 12.4% in sales during fiscal 2024 as volumes were down 12.9%.
Net sales of equipment operations (comprising Agriculture and Turf, Construction, and Forestry) decreased 19.4% year over year to $44.76 billion. Total net sales (including financial services and others) were $51.72 billion, down 16% year over year. Deere reported earnings per share of $25.62 in fiscal 2024, 26% lower than fiscal 2023.
Deere anticipated farm fundamentals to remain depressed globally in 2025, continuing to weigh on farm profitability. Global stocks are expected to reach the fourth-highest level on record. Anticipated record production in South America, particularly in Brazil and Argentina, is likely to further pressure global commodity prices in 2025.
Net sales for Production & Precision Agriculture are expected to decline 15% year over year in fiscal 2025. Sales of Small Agriculture & Turf are expected to drop 10%. Sales of Construction & Forestry are projected to move down 10-15%. The Financial Services segment’s net income is expected to be $750 million.
Deere expects net income for fiscal 2025 between $5 billion and $5.5 billion, much lower than the $7.1 billion reported in fiscal 2024. The company has taken steps to reduce costs and intends to cut down production volumes and manage inventory in the wake of the challenging market conditions.
Analysts seem to be losing confidence in the DE stock. This is evident from the downward earnings estimate activity for both fiscal 2025 and fiscal 2026, as seen in the chart below.
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Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
Not All is Red for Deere Stock: A Few Green Flags
DE’s Focus on Technology, Brand Position Provide an Edge: Increased global demand for food, driven by population growth and rising standards of living, will support the demand for agricultural equipment in the long term. The U.S. agricultural machinery market is expected to witness a compound annual growth rate of 6.3% between 2024 and 2027, and reach $53.7 billion in 2027. The need to replace aging equipment will also support demand.
With increasing farm sizes, there is a greater need for labor, but escalating labor costs are prompting farmers to turn to mechanization. Deere has been continuously focused on launching products equipped with advanced technologies and features to keep up with customers' evolving demands. Precision agriculture technology is expected to be a key catalyst. The demand for the company’s construction equipment will be supported by increased infrastructure spending.
DE Stock Offers Higher Returns: Deere’s trailing 12-month return on equity is 31.3%, ahead of the industry’s average of 27.6%. Return on equity reflects how effectively a company is utilizing its shareholders’ funds in its operations to generate income.
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DE Maintains Divided Hikes Despite Weak Results: Deere recently hiked its quarterly dividend by around 10.2% to $1.62 per share. This takes DE’s current dividend yield to 1.46%.
Is it Still Wise to Retain Positions in DE Stock?
Deere’s market leadership position, technologically advanced products and strong dealer network provide it with a competitive advantage to leverage on the long-term demand prospects for both agricultural and construction equipment. However, Deere has been facing challenges due to weak farmer spending amid low commodity prices.
The company’s guidance for fiscal 2025 reflects expectations of persistently low commodity prices, which is not promising. The downward estimate revision activity in earnings and expensive valuation warrant a cautious approach for existing investors. Potential investors should consider waiting for clearer signs of recovery before investing in this Zacks Rank #5 (Strong Sell) stock.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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