Deere (NYSE: DE) recently reported its results for the third quarter of fiscal 2024 (fiscal year ending in October), with revenue and earnings beating the exchange’s estimates. The company reported equipment revenue of $11.8 billion and earnings of $6.29 per share, compared to consensus estimates of $10.9 billion and $5.68, respectively. Following the beat in the third quarter, DE stock rose 7% to levels now around $380. However, we believe DE stock is fully valued and investors willing to buy it are probably better off waiting for a dip.

DE stock has seen strong gains of 50% from $255 in early January 2021 to around $380 now, compared to a similar change in the S&P 500 over that period. However, DE stock’s rise has been far from consistent. The stock’s returns were 29% in 2021, 27% in 2022, and -5% in 2023. In comparison, the S&P 500’s returns were 27% in 2021, -19% in 2022, and 24% in 2023 – suggesting that DE lagged behind the S&P in 2023.

Actually, consistently beats the S&P 500 – In good times and bad – it has been difficult for individual stocks in recent years; for heavyweights in the industrial sector, including CAT and RTX, and even for megacap stars GOOG, TSLA and MSFT. In contrast, the Trefis High Quality Portfolio with a collection of 30 stocks outperformed the S&P 500 every year in the same period. Why is that? As a group, the HQ portfolio stocks delivered better returns with less risk compared to the benchmark index; it was less of a rollercoaster ride, as evidenced by the HQ portfolio’s performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and increased interest rates, could Germany face a similar situation as in 2023 and perform worse than the S&P in the next 12 months – or will there be a sharp jump? From a valuation perspective, the DE share seems to be fairly valued. We estimate Deere’s Rating to $390 per share, close to the current market price of $380. Our forecast is based on a P/E ratio of 15 for DE and expected earnings of $25.50 per share for the full fiscal year 2024. The P/E ratio of 15 is the stock’s average over the last five years.

Deere’s Q3 revenue of $13.2 billion was 17% lower year-over-year, with construction and forestry segment revenue down 13%, manufacturing and precision agriculture revenue down 25%, and small farm and turf sales down 18% year-over-year. The company continued to benefit from a robust pricing environment, but equipment volumes declined. Deere’s Q3 2024 profit of $1.7 billion reflected a sharp 42% decline from profit of $3.0 billion in the year-ago quarter, driven by lower operating margins across all segments. Earnings per share of $6.29 were lower than the year-ago quarter’s $10.20, due in part to a 6% decline in the total number of shares outstanding as a result of share repurchases.

Looking ahead, the company expects a double-digit decline in revenue across all of its production segments in 2024. Deere may continue to face headwinds in the near term due to lower farm incomes and increased interest rates. To put this in perspective, the company expects net income of $7 billion in 2024, while it reported $5.9 billion for the nine-month period ending July 2024. This meant earnings of $1.1 billion in the fourth quarter of 2024, significantly lower than the $2.4 billion it reported in the year-ago quarter.

Deere’s business is cyclical and its sales volume has likely reached mid-cycle levels after reaching a cyclical peak last year. Therefore, we see no reason to raise the valuation multiple from the historical average of 15x. Overall, we think Deere stock is now fairly valued at around $380.

While DE stock appears to be fully valued, it is helpful to see how Colleagues from Deere Comparisons of important key figures. You can find further valuable comparisons for companies in various industries at Comparisons with other providers.

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