Abbey earnings smash Wall Street estimates. Here’s why the stock is down.
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Wall Street is starting to wonder if the current environment is as good as it is for Derry.
Justin Sullivan/Getty Images
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It shattered Wall Street’s earnings estimates more Financial guidance for the fiscal year. However, the stock decreased. The current results have been impressive, but investors are worried about whether the current phase of high demand for agricultural equipment is over.
For the third fiscal quarter ending in June, Deere (stock ticker: DE) mentioned Earnings per share of $10.20 on equipment sales of $14.3 billion. Wall Street was looking for earnings of $8.22 per share on equipment sales of $14.1 billion. A year ago, Deere reported earnings of $6.16 per share on $13 billion in equipment sales.
The Monastery of Guidance was also raised on Friday. For fiscal year 2023, Deere now expects net income of between $9.75 billion and $10 billion. In May, the guidance range was $9.25 billion and $9.5 billion, while in February management expected $8.75 billion to $9.25 billion.
The $500 million increase nearly came close to the amount by which Deere beat Wall Street’s third-quarter estimates.
Deere stock was down 4.9% at midday, while
Standard & Poor’s 500
It was flat and
Dow Jones Industrial Average
It rose 0.1%.
It is a surprising move to make big profits. Worries about the top of the agribusiness cycle were creeping in. “Moving to a more cautious stance on Ag OEMs,” Baird analyst Meg Dupree wrote in a report earlier this week. OEM is short for original equipment manufacturer and refers to companies such as Deere.
Dealers are restocking stock, Dupree said, which is good for current results but less so for on-road performance. When their stocks are full, merchants don’t order more products.
Another reason for caution is that farm incomes in the United States decline as crop prices moderate, leaving farmers with less flexibility in purchasing equipment. The USDA projects about $151 billion in net farm income for 2023, down about 20% from 2022.
Dobre is also seeing gains in used farm equipment retrofit prices and costs starting to catch up to new equipment prices. He expected Deere to beat earnings estimates for the fiscal third quarter, but said, “We recognize a more rigorous nine-to-12-month (for stock) preparation.”
Dobre still rates Deere stock as a Buy and has a price target of $445. So does Citi analyst Timothy Thain. Its price target is $475 a share. Thein called the results solid in a report on Friday.
In general, Wall Street loves Deere stock, but the ratings reveal a hint of anxiety. About 69% of analysts covering the stock rate them Buy, while the average percentage of Buy stocks in
Standard & Poor’s 500
about 55%. Four months ago, however, 73% rated the stock as a Buy.
The analyst’s average price target is about $456 per share, up about $6 over the past four months.
Target prices rose after Deere reported its fiscal second-quarter earnings in May. Deer’s stock is up about 13% since the report was released. the
Standard & Poor’s 500
It gained about 4% over the same period.
Target prices may rise again after another strong set of quarterly numbers from the agricultural giant. However, the concern about the agribusiness cycle will remain.
Investors may wait for Deere’s forecast for fiscal year 2024, which is due in November. Management highlighted the healthy order book on the earnings conference call. That’s positive, but it basically guarantees a strong finish to fiscal 2023.
Write to Al Root at allen.root@dowjones.com
