What happened
Shares of tractor maker Deere & Company (DE 1.38%) sank 4.5% through 10:20 a.m. on Friday despite beating analyst earnings forecasts earlier in the morning.
Heading into its fiscal Q3 2023 report, analysts had expected Deere to report $8.20 profit per share -- but Deere actually reported $10.20 per share. On sales, Deere's beat was similarly sizable. Wall Street predicted $14.25 billion in Q3 revenue; Deere delivered $15.8 billion.
But if the company did so well in the quarter, then why is its stock down at all, let alone down 4.5%?
NYSE: DE
Key Data Points
So what
Well, let's see here. Sales grew 12% year over year. Net income grew 58%. And profits per diluted share were up 66%. That seems like green lights to me, all around.
CEO John May characterized the global market for agricultural equipment as "favorable" and "showing further improvement," and said Deere's supply chain is "stabilizing." And backing up all these statements, Deere proceeded to raise guidance for the rest of this year. All three of the company's main industrial divisions are expected to post sales growth of anywhere from 5% to 20%. On the bottom line, Deere thinks 2023 net income will top out somewhere between $9.75 billion and $10 billion -- roughly $500 million more than previously predicted.
Now what
At the per share level, that works out to profits as high as $34 per share, well above Wall Street's forecast of $31.88 per share. Business is booming at Deere, and management sees this boom in agricultural products demand continuing at least through the end of this year.
The question investors seem to have today is, how much longer will it last after the year ends? Agriculture is a cyclical industry, after all, with booms following busts, and busts following booms. So I guess you can't blame investors if today they're looking at Deere's robust results and thinking, "if something seems too good to be true, it probably is."
That being said, Street analysts who presumably are just as aware of the cycles as we are (and hopefully more so) are forecasting 17% annual earnings growth for Deere over the next five years. With that prospect ahead of it, Deere stock at less than 12 times current-year earnings, and paying a modest 1.2% dividend yield, looks pretty attractive to me.
