Deere Analyst Says Company Took Earnings Miss And Guidance Cut 'In Stride'

Deere & Company DE reported a fiscal third-quarter miss and guidance cut and the stock reacted "in stride," according to Wells Fargo.

The Analyst

Wells Fargo analyst Andrew Casey maintains an Outperform rating on Deere with a price target lowered from $185 to $170.

The Thesis

Deere attributed its earnings miss to farmers who paused their buying activity due to uncertainty in the trade war. The company also lowered its fiscal 2019 outlook due multiple factors, including unfavorable currency and mix within the Ag and Turf businesses and unabsorbed overhead from production cuts at large farm equipment facilities.

Encouragingly, multiple cost related headwinds are likely to dissipate as soon as the fourth quarter and makes the case for operating margin growth for Deere even if volumes remain flat, Casey wrote in a note. The case can also be made that Deere's third-quarter woes are short-term as expectations for U.S./Canada and South American large farm equipment markets will grow over the coming years.

Deere briefly discussed it has a strategy of improving profit through structural changes and Casey said this could give investors confidence it can hit 15% operating margins at mid-cycle volumes by fiscal 2022. Management didn't provide specific details on the initiatives but is expected to detail benefits to next year's performance during its upcoming fiscal fourth quarter earnings report.

Price Action

Shares of Deere were trading higher by 1.8% Monday at $152.

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