Renowned industrial equipment manufacturer Deere & Company (DE) in Moline, Ill., is expected to release its fiscal third quarter (ended July 31) earnings report on August 20 before the market opens. Analysts expect the company’s revenues to come in at $10.33 billion in the about-to-be-reported quarter, representing a 31.5% increase year-over-year.

In addition, the $4.58 consensus EPS estimate for the fiscal third quarter indicates a 78.1% improvement from the same period last year. DE is expected to have grown on the back of strengthening industrial and construction activities in the United States over the past couple of months.

The stock has gained 95% in price over the past year and 39.9% year-to-date.

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Here’s what could shape DE’s performance in the near term:

Inorganic Growth

DE has been expanding its operations and market reach through acquisitions. For example, on August 5, the company’s wholly owned subsidiary and world’s largest tractor maker, John Deere, acquired agriculture tech startup Bear Flag Robotics for approximately $250 million. DE aims to leverage the acquired company’s technological prowess to develop self-driving tractors that can run 24×7. Such farm equipment is expected to make farming more efficient and cost-effective, and thereby, should be highly demanded.

Last year, the company acquired Brazilian aftermarket service parts manufacturer Unimil. Regarding this transaction, President of DE Worldwide Agriculture and Turf Division in the Americas segment Cory Reed said, “Unimil will help John Deere deliver a bold evolution of our business, reshaping our operating model and revolutionizing our production systems in agriculture.”

Impressive Growth Prospects

DE is expected to benefit from the Senate-approved infrastructure bill significantly. The company’s revenue is expected to increase 20% in its fiscal fourth quarter (ending October 2021), 26.9% in 2021, and 11.6% next year. The consensus EPS estimates indicate a 67.8% year-over-year rise in the current  quarter, a 107% rise from the prior-year quarter in the current year, and a 16.8% improvement from the same period last year in 2022. Also, the Street expects DE’s EPS to increase at a 38.5% CAGR  over the next five years.

The company has an impressive earnings surprise history; it topped the consensus EPS estimates in each of the trailing four quarters.

Consensus Rating and Price Target Indicate Potential Upside

Of the 10 Wall Street analysts that rated the stock, seven rated it Buy, while two rated it Hold and one rated it Sell. The $422.22 12-month median price target indicates a 12.2% potential upside from yesterday’s $376.33 closing price. The price targets range from a low of $346.00 to a high of $450.00.

POWR Ratings Show Promise

DE has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

DE has a B grade for Sentiment and Growth. Favorable analyst sentiment and outlook are in sync with the Sentiment grade. In addition, the company’s net income and EPS have increased at CAGRs of 35.9% and 37.6%, respectively, over the past three years, justifying the Growth grade.

Of the 84 stocks in the A-rated Industrial – Machinery group, DE is ranked #35.

Beyond what we’ve stated above, we have rated DE for Momentum, Value, Stability, and Quality. Get all DE ratings here.

Bottom Line

The rising demand for farming equipment as food prices rise substantially amid multi-year-high inflation is expected to have shaped DE’s performance in the third quarter. Furthermore, as countries worldwide resume their industrial and manufacturing activities, DE is well-positioned to maintain its growth trajectory over an extended period, making the stock an ideal investment bet now.

How Does Deere & Company (DE) Stack Up Against its Peers?

While DE has an overall B rating in our proprietary rating system, check out these other stocks within the Industrial – Machinery  group with an overall A (Strong Buy) rating: Tennant Company (TNC), Crane Co. (CR), and Lincoln Electric Holdings, Inc. (LECO).

Click here to check out our Industrial Sector Report for 2021

DE shares were trading at $373.29 per share on Wednesday afternoon, down $3.04 (-0.81%). Year-to-date, DE has gained 39.44%, versus a 19.33% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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