Deere & Company Shares May Lift A Little Further Before A Big Fall

Deere & Company DE shares have rebounded nicely off of recent lows. Fortunately for those who bought Deere into the weakness, there appears to be a little meat left on the bone for the trade. However, the longer-term technical picture for Deere stock is much more bearish and dictates a level of caution for current and prospective longs.

Do the company's fundamentals justify this bearish technical cloud over the company's stock?

What The Bulls See

• A Treasury-beating 2.9 percent annual dividend yield.
• A solid current ratio of 2.24.
• Some cheap valuation metrics: An enterprise value of $64.2 billion that easily eclipses the market capitalization of $30.65 billion, a price-to-book ratio of 2.82 and a price-to-sales ratio of 0.84.

What The Bears See

• • A PE ratio of around 15 that is unjustified when the 2015 estimates for revenues (-8.7 percent) and earnings (-22.6 percent) are considered.
• • Negative levered free cash flow of $691.24 million for the year.
• • Total cash of $3 billion versus total debt of $37 billion.
• • A debt-to-equity ratio of over 340 percent.

Technical Outlook

Technicians note that at $85.59, Deere stock is likely in store for a bit more upside before serious selling pressure commences again. The near-term resistance levels to watch are $87.34 and $89.12, either of which can be justified as technical resistance using various techniques. The longer-term picture is much more bearish, say the technicians. They note that the stock likely is in the early stages of the “c” wave of a macro “ABC” move lower with a minimum target at $62.56 with an extended move down to $54.18 as a distinct possibility.

Short-sellers will likely be stepping into the Deere arena at one of the two resistance levels noted above in anticipation of the move down to the low $60s.