Shares of agriculture equipment maker Deere dropped 1.9% on Wednesday even after it issued strong guidance as the company’s 4Q FY20 revenue fell short of analysts’ expectations.
Deere’s (DE) 4Q revenue declined 1.7% year-over-year to $9.73 billion, falling behind analysts’ forecast of $9.89 billion. Higher sales from the company’s Agriculture and Turf segment were more than offset by weakness in the Construction and Forestry division. Despite lower sales, EPS grew 5.3% to $2.39 due to efficient cost management. Analysts pegged the EPS estimate at $1.49.
Management expects its FY21 net income to be in the range of $3.6 billion-$4.0 billion, up from $2.8 billion in FY20 (ended Nov. 1). The company could also benefit from “improving conditions in the farm economy and stabilization in construction and forestry markets.”
Additionally, DE anticipates sales for its Agriculture and Turf Equipment segment to increase by 10%-15% in FY21. It predicts the Construction & Forestry segment’s sales growth to be in the range of 5%-10%. (See DE stock analysis on TipRanks)
Following the earnings release, J.P. Morgan analyst Ann Duignan increased the price target on Deere to $201 from $174. In a research note to investors, Duignan stated that a “perfect storm just blew over” the agriculture sector, with crop supplies significantly tighter than anticipated and demand accelerating in the near-term. The analyst raised her growth and margin estimates for Deere to reflect stronger fundamentals into the year-end. However, Duignan reiterated a Hold rating due to valuation concerns.
The Street is cautiously optimistic about Deere, with a Moderate Buy analyst consensus based on 4 Buys, 5 Holds and 1 Sell. With shares rising 48.2% year-to-date, the average price target of $254.70 indicates that shares are fully priced at current levels.
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