Despite exceeding top and bottom line expectations for its fiscal second quarter this morning, Deere & Company's DE stock dropped -5% in Thursday's trading session after lowering its fiscal 2024 net income guidance.
Still, as a pioneer and the dominant market leader in manufactured agricultural equipment, investors may be wondering if it's time to buy the dip in Deere's stock given its strong historical performance.
Q2 Financial Review
Deere's Q2 net income came in at $2.37 billion or $8.53 per share which beat the Zacks Consensus of $7.86 a share by 8%. On the top line, Q2 sales of $13.61 billion came in 2% above estimates of $13.25 billion.
Year over year, Q2 earnings dipped -11% from $9.65 a share in the comparative quarter attributed to higher operating cost while sales fell -15% due to lower volumes. With that being said, Deere has now surpassed earnings expectations for seven consecutive quarters and has exceeded sales estimates for eight straight quarters.
Guidance & Outlook
Taking away from Deere's momentum and track record of exceeding expectations was a lower target for its fiscal 2024 net income which it now expects at $7 billion and down from guidance of $7.5-$7.75 billion given in February.
This is largely attributed to what Deere stated will be a 15% decline in the large agriculture industry in the U.S. and Canada with the small agriculture market and turf sales projected to be down 20%.
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Based on Zacks estimates, Deere's FY24 EPS is expected to fall -21% to $27.39 versus $34.63 a share last year. Total sales are now projected to dip -15% to $47.19 billion.
Tracking Deere's Historical Performance & Valuation
Deere's stock is now down -1% year to date but is still up +7% over the last year although this has trialed the S&P 500's +28% and noticeably lagged construction equipment giant Caterpillar's CAT +65%. However, over the last five years, Deere's +192% has slightly edged Caterpillar's +186% and easilyt topped the S&P 500's +89%.
Even better, in the last decade, Deere's stock has soared +338% to impressively top Caterpillar's +237% and the benchmark's +189%.
With a current price tag of $394, Deere's stock trades at 15.1X forward earnings which is slightly beneath its five-year median of 16.1X and well below the high of 33.1X. This is also a noticeable discount to the S&P 500's 22.2X while being closer to Caterpillar's 16.5X.
Bottom Line
Deere's stock currently lands a Zacks Rank #3 (Hold). There could certainly be better buying opportunities given the slowdown in agricultural-related activities but the company's reasonable valuation and historical performance does suggest longer-term investors may still be rewarded from current levels.
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