ISI Group Reiterates Hold Rating, $82 PT on Deere & Company

In a report published Wednesday, ISI Group reiterated its Hold rating and $82.00 price target on Deere & Company

. ISI Group noted, “Deere just reported its fiscal 3Q12 EPS of $1.98 vs the consensus estimate of $2.31/our $2.32 and year ago $1.69. Revs were up 15.6% y-o-y, below our +22.4% estimate and consensus of +23.4%, led by a notable Ag & Turf shortfall. Operating margins on a business segment basis were 12.6%, below our 14.2% estimate, with both Ag & Turf and Construction & Forestry margins well below our expectations. That's a y-o-y incremental margin of 13%, well below last quarter's 24% incremental margin. Recall we later found in Deere's 2Q 10Q (note published 5/31) that there was y-o-y OPEB help of $79m in 2Q, and we found that was something that was expected to continue for 2H12; thus if 3Q was also helped by approx $79m of lower OPEB, the underlying incremental for 3Q ex-the OPEB help was closer to only 7% (vs 2Q12's ex-OPEB help of 16% incremental and recall 1Q12's incrementals were only 9%); Deere today provided a full yr pension + OPEB guidance of down $110m for the year, thus pension expense up for the year negates some of the lowered y-o-y OPEB expense previously not called out but netnet, Deere's core incremental margins have been disappointing for the year. On a P&L basis, the margin miss was mostly in COGS though R&D also came in higher than expected (S,G&A was contained, growing much less than sales).” Deere & Company closed on Tuesday at $80.13.