Will John Deere's Earnings Help to Calm the Markets?
At this point, any bit of good news would have a calming effect on markets. With that in mind, John Deere's earnings report may be a case of the right...
A company known for its reliability should give investors something they can count on
John Deere (NYSE:DE) is due to report earnings before the market opens on May 20. And at this point, any bit of good news would have a calming effect on markets. With that in mind, John Deere may be the right company at the right time.
The company is expected to deliver revenue that's in-line with analysts' expectations of approximately $13.1 billion. However, right now it's all about earnings. And the good news for investors is that Deere is expected to post earnings per share of $6.80. That would be above the consensus estimate of analysts tracked by MarketBeat which give DE stock an EPS of $6.67.
Will Earnings be Enough to Calm Markets?
The answer is it may not calm them down, but it may act as a shot of novocaine. The markets hate uncertainty. And while John Deere only addresses one sector of the market, it could give investors a measure of certainty.
Agriculture stocks were among the hottest stocks prior to this selloff. Unlike some other sectors, however, the overall thesis for this sector hasn't changed. Commodity prices are continuing to move higher. Food shortages remain a real possibility due to a significant quantity of the world's wheat being shut in Ukraine.
Investors May be Getting a Second Chance
At the onset of Russia's invasion of Ukraine, I expressed concern about DE stock. My concern largely centered around the company's small (but not non-existent) exposure to Russia. And the stock did drop initially. However, it quickly recovered its footing and posted a gain of about 30%.
But stocks are being repriced across the board and DE stock is no different. It's down about 16% from its highs. But this may be giving opportunistic and risk-tolerant investors a second chance to grab shares at a more favorable price.
Deere has an attractive valuation with a price-to-earnings (P/E) ratio of just over 20 as of this writing. And the company's earnings and revenue are expected to post strong gains over the next five years. Plus, investors shouldn't ignore the dividend which currently pays $4.20 annually.
A Technology Play?
John Deere is becoming one of the leaders in the emerging sector of agriculture technology. The company is planning to ship its first fully autonomous tractor sometime in late 2022. And that's not the only new technology Deere is introducing. The company also is developing a crop sprayer that is assisted by machine learning.
For its part, Deere is trying to address the need to feed a growing population at a time when there is less available land for farming. And there are fewer farmers to do the work. Deere believes that as demand for food and efficient water use remains elevated, it will have a long runway for growth.
Is DE Stock a Buy?
My short answer is yes. But it's up to you to decide if the risk is worth it for you. However, at the very least you should put DE stock on your watchlist. I'll simply affirm what I wrote about Deere in February. The stock may have further to fall. Now isn't the time to get reckless.
Still, it does appear that this is a case of the market repricing, not re-evaluating the company and its stock. And if that's the case than DE stock remains a solid choice for long-term, value-minded investors who can use this sell-off as a chance to buy shares at a more attractive price.
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